Conglomerates or companies engaged in a variety of industries and businesses have the potential to grow their earnings at a brisk pace. However, budding investors should realize that there are also sizable risks that go along with investing in a conglomerate. Read on to learn the risks involved in investing in these complicated giants.

Acquiring Problems
By having its hands in multiple businesses, a conglomerate may increase its potential to generate income for its shareholders, and in some cases reduce its overall earnings cyclicality. However, sometimes conglomerates become involved in so many businesses - each involving multiple disciplines, making it difficult for management to get its arms around all of the companies it has under its umbrella. (For more insight, see The Ups And Downs Of Investing In Cyclical Stocks.)

It may also be hard for a centralized management team to get a handle on what drives each business in terms of preferred suppliers, operating costs, the dynamics of that industry, and so on. By extension, that can be a problem because in order to maximize growth of the overall conglomerate and ultimately build shareholder value, management must have a good grasp on each segment and the ability to be "hands on".

This is not to say that conglomerates are destined to be failures. To the contrary, there are many conglomerate firms that have fared well throughout the years, such as General Electric Co. (NYSE:GE), which operates in areas including medical devices, industrial generators, engines and solar panels.

However, even respected firms that are known for their due diligence and integration successes have become entrenched in businesses that they couldn't quite integrate successfully. (For related reading, see Introduction To Diversification and The Dangers Of Over-Diversification.)

Staffing Problems
An organization's most precious resource is usually its human capital - the people that make the products, sell the services and ultimately help bring revenue in the door. In fact, that is why companies, more specifically human resources, will do their utmost to make sure that the ranks are always well staffed.