10 Significant Risk Factors When Investing in a Company

Business Sector Performance
Company success depends in part on trends within the business sector as a whole. iStockphoto/Thinkstock

When evaluating the risk of investing in a particular company, start with the big picture. Every company is unique, but individual success also depends on trends within the business sector as a whole. Let's say you're thinking about investing in an auto company. You might notice newspaper articles reporting a decreased demand for large, heavy trucks, but an increased demand for fuel-efficient vehicles. To lessen your risk, you would want to invest in a car company that designs lightweight or hybrid vehicles.

A business sector can be as broad or specific as you want. You can look for data and analysis of the entire consumer electronics sector or you can home in on mobile computing devices like notebooks, netbooks and tablets. Most business sectors are covered by "trade" publications and Web sites — check out the Yahoo! trade magazine directory — that go into great detail about industry sales figures and trends.

Major newspapers like The Wall Street Journal, The New York Times and the Financial Times also publish in-depth coverage of business trends and industry performance. And don't forget social media. Stock analysts and "experts" of varying qualifications have flocked to sites like Twitter, Facebook and Google+ to share the latest financial reports and industry news [source: Koning Beals].

When evaluating the performance of an entire business sector, pay attention to whether the sector is dominated by one or two major players, or if the market share is spread out more evenly. Now let's talk more about evaluating the competition.