Types of Risk: Rapid Fire

What this video covers

• Why systematic risk is non-diversifiable and hits the entire market, while unsystematic risk is issuer-specific and canceled by holding many securities
• How the PRIME acronym captures the five systematic risks: Purchasing power (inflation), Reinvestment, Interest rate, Market, and Exchange rate (currency)
• Why utility stocks fall when interest rates rise: highly leveraged sector risk, not fixed-income interest rate risk
• The difference between financial risk (too much debt) and business risk (operational quality), and why a great company can still fail from leverage
• What opportunity cost really is: a foregone gain, an implicit cost, never a realized loss on the balance sheet
• The exact liquidation priority: secured debt, unsecured debentures, subordinated debt, preferred stock, then common stock, and why debt always beats equity regardless of adjectives
• Why political risk is unsystematic (one country) but geopolitical risk is systematic (global markets), and why beta measures only systematic risk