Risks in Direct Equity Investing
Direct equity — buying individual stocks yourself — offers control and differentiated return potential, but transfers a number of risks onto the investor that a diversified mutual fund would otherwise spread out or manage. This guide catalogues those risks: systematic/market risk (which diversification can’t solve, but asset allocation across asset classes can help with), unsystematic/company-specific risk (which concentration in a small number of holdings amplifies), liquidity risk (especially in smaller stocks), sector concentration hiding behind a seemingly-diversified stock count, information asymmetry, behavioural risks (herd mentality, loss aversion, overconfidence), corporate governance risk, optional leverage risk (margin/F&O), and the often-overlooked time and expertise commitment direct equity genuinely requires. We close with practical mitigants — position sizing, sector-level diversification checks, staying within your “circle of competence,” and a “core and explore” approach combining index/mutual funds with a smaller direct equity portion.