This portfolio has no Stock Exposure Risk.
Click ‘Market Cap Risk’
This portfolio has no Stock Exposure Risk.
Investing a significant portion, typically more than 10% of your portfolio in a single stock, is exposing your portfolio to stock exposure risk.
A stock is exposed to several company specific risks, namely business, balance sheet, valuation or people risk. Therefore a higher investment in one stock, has a disproportionately large impact on portfolio performance. A 20% drop in a stock that comprises 20% of your portfolio reduces your absolute returns by 4%.
Stock exposure can also occur unintentionally. As a value investor you may have made a sizeable investment in a stock when it was attractively priced. Over time, as a result of both the company performance and the market prices, it can become concentrated in your portfolio. Your dilemma then is should you retain or reduce your holding.
It is not possible to resolve this with a simple yes/no answer and you need to consult your fiduciary investment advisor. However, caution requires you to be aware of this risk, and sooner rather than later, reduce your exposure.
