Too Big a Risk? Catastrophic Risks in Business and Investing

Whilet businesses and investors are continuously exposed to many risks, there is a sub-category of risks that are rare, but if they do occur, can have devastating consequences. This session looks at those catastrophic risks, breaking them down first on source (nature, man-made, regulatory/legal), locus of damage (one business, a few businesses, an entire sector, the entire economy) and then looking at how to incorporate those risks into business value. While their effects can show up in every input into valuation, I present a flowchart for deciding the right place to show catastrophic risks, based upon whether they are insurable or not, and whether they affect a few firms, the sector or the market. I close the session at how markets price these risks, arguing that they swing between denial (when the risks are distant) to panic (when they are imminent).
Slides: pages.stern.nyu.edu/~adamodar...
Blog Post: aswathdamodaran.blogspot.com/...

[@dinzeconomics89]

You are the best Professor Damodaran

[@apothe6]

The professor makes the abstract and mundane extremely interesting, thank you

[@stronglycorrelated]

Your TH-cam channel is the proverbial gift that keeps on giving!

[@AutoDisheep]

Professor Damodaran is up-to-date on his subject matters.

[@ramjiYahoo]

very useful lecture, as always Prof Sir

[@ramjiYahoo]

Sir when you get time, please share a video on how and where all we could use chagpt, Google gemini in Valuations (recently we found that by copy paste the balance sheets in pdf/ jpg format into chatgpt/ gemini, and write a small code like- Please format these financials in Table format, it converts them as Excel/ google sheets table formats

[@gorandamchevski]

Thank you professor, I recently tried to implement catastrophic risk in an analysis for the first time. Ended up discounting the present value by some 20% to account for catastrophic risk (war).

[@Thing-vc2qm]

Very relevant for biotech valuation

[@sagarpatil6485]

Thank you sir for making a short video

[@kaundalsabhishek]

Aswasth sir
Anything about Indian markets
It is at 24 PE and the Q3 results aren’t so good, inflation is rampant

[@GiMeHope]

Very interesting. @Aswath Damodaran: Do you think that FEMA or other emergency agencies could either use your value equations, or do theese agencies allready have measures for estimating effects of cat risks, that can be incorporated in to valuation as such?

[@jg3040]

I also think the issue with climate change is very deep and as an institutional investor I have realized that the proposals aren’t better than the current system in any way - reliability is big and probability of catastrophic events have been debated more recently. If it’s not cost effective to switch from oil/gas and coal without subsidies or even with subsidies than it becomes a big issue when inflation has already hurt so many lower income individuals. The other major problem is proof that we can even change or impact climate change positively. Scientists agree it’s better to be in warmer climate for crops and life overall. Plants thrive on carbon and how would lowering carbon impact plants.. etc.

[@jg3040]

Net zero by 2050 have definitely led to risky changes within every industry. Most notably for steel with projects of mini mills where they have poor IRRs and evidence of investments/ machinery isn’t quite there

[@inderpreetsingh7904]

3:30 , oldest risk management technique lol

[@abdelkaioumbouaicha]

📝 Summary of Key Points:
📌 The video delves into the concept of catastrophic risk, focusing on how businesses and investors deal with existential threats like natural disasters, hacking incidents, and climate change.
🧐 Catastrophic risk can impact a company's value by affecting expected cash flows, changing operating metrics, and increasing failure risk, leading to a reevaluation of intrinsic value and pricing strategies.
🚀 Different scenarios of catastrophic risk, such as insurable risks, existential risks, and sector-wide risks, require distinct valuation approaches, including scenario analysis, probability assessment, and adjustment of the cost of capital.
💡 Additional Insights and Observations:
💬 Quotable Moments: "Catastrophic risk can either put the company's survival at risk or change its trajectory dramatically, making it a very different company."
📊 Data and Statistics: The video discusses the historical market caps of fossil fuel companies in relation to oil prices, highlighting the impact of climate change concerns on their valuation.
🌐 References and Sources: The video draws examples from real-life events like volcanic eruptions, hacking incidents, and the impact of climate change on fossil fuel companies to illustrate catastrophic risk.
📣 Concluding Remarks:
The video provides valuable insights into how catastrophic risks can profoundly impact businesses and investors, emphasizing the importance of assessing and pricing in these risks to make informed decisions in a volatile and uncertain environment. Understanding the nuances of catastrophic risk is crucial for effective risk management and strategic planning in today's dynamic business landscape.
Generated using TalkBud

[@alejandrogarciacorral8217]

NEW DAMODARAN VIDEO 🗣️🗣️🗣️🔥🔥🔥🔥🔥

[@nebojsascepanovic7277]

Could the simple fact that one person has full control of thrillion-dollar company be regarded as potentially catastrophic risk?

[@AutoDisheep]

I think it would be in the man-made, legal (hopefully), or reulatory.

[@user-vi6fi8hy9m]

People hate oil companies, while they love oil 😂

[@alext1723]

Not all oils are bad: Olive oil, Sesame oil... 😊