I do not have a document for this or a very structured method but to me there are five risks which I know of and one risk of the unknown.
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The topmost risk to be managed is - Management Integrity Risk. This to me is the most important. While I do not consider any management to be fully ethical (Infosys comes very close), I want to invest my money with managements which will not skim me from time to time. I do not like managements which have a lot of subsidiaries owned by related parties. I do not like managements which carry lot of cash on books unless it is Infosys or TCS. Whatever may be the valuation comfort, the cash on books and sectoral tailwinds, investing in that stock is a NO-NO if the management does not want to share their money with the minority investors. LEEL is an example. What happened to the 1000+ crores? Dividend distribution is a good indicator.
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The second important risk is - Management Competency Risk. While managements might be very honest, are they need to be competent. This is very difficult to measure except by judging from a long history of decisions which pay off. All managements will make mistakes. But over a long period of time we want them to take more right decisions than wrong ones. Many times we can go wrong here. For example when Infosys lost their way during Shibulal’s tenure. He was I think not upto the job. But if the company has a reputation for integrity they will bounce back. But also note Shibulal got replaced by someone who brought the first risk into the picture.
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The third is Business/Sectoral Risks - Does the sector/business face any immediate headwinds? Is the business viable in the long run? Is the business profitable? Does it have some runway for growth? The free cashflows, dividend distribution etc comes into play. This is where I will not touch Future Retail. They are simply not there yet.
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Valuation Risk - Unfortunately in the Indian context valuation does not seem to be anything. Companies going at 100+. Behemoths like HUL at 60+. Though I do not want to invest in FMCGs at more than 30PE, it looks like 30 PE is given for the lowest quality FMCGs. I would never have bought any stock at 50PE leave alone 100 PE for DMart. But I am holding it. This is where Indian equities as a whole is so expensive. I still am not able to decide on this. One way of playing this risk temporarily is by writing call options. But not very efficient for long periods of time.
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Macro/Global headwind Risks - None of us can determine this with certainty. But the good thing is we can from time to time use the available hedging instruments. For example I hedged the BREXIT vote scenario by buying PUT options. If things had gone really bad I would have made enough money to do SIP for 1 year. Otherwise I do not have any way to really preempt global risks. If any of you have any methods to understand and mitigate this please share.
So in summary. i want to be in control of 1, 2 and 3. Not 100% but to a large extend. I want to understand 4 but within context. I do not want to assign a valuation number and then be rigid about it. Since most of the highly valued companies are exceptionally well managed we do get time to limit our losses or so I think. As for 5 I don’t have any objective method to understand and take decisions.