The other day AFA Investments and eight of its subsidiaries filed for bankruptcy protection. The national controversy over “pink slime”, the common lean beef filler for ground beef, was the main culprit in bringing down the company – a company which had been processing more than 500 million pounds of ground beef per year.
This is the classic definition of unsystematic also known as company-specific risk – risk which is specific to only a few companies or in an industry. This risk can easily be diversified away for well-diversified investors. For the company, however, and unfortunately for some its employees, it essentially became the only risk that mattered.