If the gulf oil spill as taught us anything is that unexpected events can occur at anytime and can drastically deteriorate the stock value of an otherwise dominantly place company, as seen with British Petroleum (BP).
In the end, there is really nothing we can do about these unexpected events as investors don’t think a massive oil spill is about to happen; however, the truly prudent, cautious, and somewhat boring traders can try to avoid companies with where unexpected events can happen.
I have tried to compile a list of potential unforeseen events that can drastically impact a stock, sector, or market overal. Feel free to list some others in the comments section below.
1. Violence – War, terrorist attacks, and other acts of violence can often impact the entire market. Violence generally always revolves around resources and inputs that can harm several material and commodity stocks.
2. Natural Disasters – Nobody wakes up expecting an entire city to be flooded or volcanic ash to takeover nearly half a continent, but it happens and can impact all stocks with exposure to that area. See the top 10 environmental payouts.
3. Fraud – While the very astute trader may be able to connect the dots, more often that not, most traders won’t know about any act of fraud until it has been made public. By then, it usually too late. Generally these type of events impact the individual stock and, in the short-term, close competitors.
4. Product Defects/Recall – Even the best of the businesses make a faulty product. Whether it be an automobile manufacturer that recalls a certain model, a medical stock with bad side effects, or a toy company that used harmful inputs, generally manufactured-based goods are at risk for these events.
5. Outages – While weather can be at fault, there are occasions when energy companies experience unexpected outages that span over a wide range of customers. Generally this leads to loss in revenue and increased expenses, which doesn’t show up well in the earnings report.
What are some other unexpected events that can harm stocks?