It's a valid risk, but my issue with left-field events like a material product recall is how do you handicap the odds and factor it into your valuation?

The only way to guard against it is to manage your position size, and that too varies from investor to investor based on their individual risk tolerance.

@PhilO , what you say is possible, and i group within the broad equity risk bucket. i wrote a blog "The Trouble with Phil" which referenced Phil Fisher's scuttlebutt method, and basically, i said beware small samples or biased samples and extrapolating them. for RMD NCK or whoever, you will always get adverse feedback. what may be interesting is tracking the feedback over time, and it is trending above sales over several years, which could have information value, if, for example, the trend suddenly worsens.

on a broader view, i am falling into the bucket of giving the company the benefit of the doubt if it has an impeccable profits record until i see evidence in the numbers. Maybe that is a bit too late for some, but chasing maybes can be an expensive exercise as well.

hold both NCk RMD

good luck

@PhilO you make a very important point.

Especially in medical devices (and also in pharma), a "high impact" quality issue (like a recall) can become an existential crisis. And there is almost nothing management can do to assure investors of how well they are managing that risk, although an orange flag to me is if they ever come across as complacent.

There are some things to look out for when assessing this risk. I'll highlight the high risk factors I consider:

1. A single product or concentrated product portfolio
2. Concentrated manufacturing facilities
3. One or few markets
4. High reliance on outsourced providers, however, an early stage company trying to do things in-house can be higher risk than using best-in-class vendors! After all, contracting manufacturing is itself a capability.

Several years ago, at an investor call, I remember asking David Williams (Chair, $PNV) about the concentration risk of having all their $500m capacity of the expanded Novosorb manufacturing capability located in one site, albeit in physically separated facilities. He pretty much dismissed the question, saying the plants were in separate buildings. But he didn't address important aspects of the question, such as: did each facility have a separate GMP licence, such that would a quality problem from one "plant" shut the whole shop down? It was an important orange flag that made me question the competence of the Board on critical manufacturing and supply chain risks.

Ultimately. my response is that I will not allow one medical device or pharma company to be more than 10% of my RL ASX portfolio. Overnight, a quality issue could wipe out 30-50% of value (at the riskier end), and we wouldn't see it coming.

$RMD has a moderate risk profile in my view. The have mutliple products, albeit concentrated in one therapy area. The product are at different stages of the life cycle, and therefore use different materials and technologies. They have mutliple manufacturing locations. But they are relatively concentrated, compared with the more diversified Big Pharma and Big Med Tech companies.

So, I just wanted to reinforce your post for everyone investing in this space. Understand your concentration risk WITHIN any company!