Episode 6 – Evaluating Risk at the Portfolio Level
November 26, 2018

Episode 6 – Evaluating Risk at the Portfolio Level

In the second of this two part series on risk, David Barr and Felix Narhi move from talking about risk assessment at the company level to risk management at the portfolio level.

Subtitle: Making One Decision is Better than Making Two

In the second of this two part series on risk, David Barr and Felix Narhi move from talking about risk assessment at the company level to risk management at the portfolio level. One of the key aspects is cash management – having cash on hand always helps to make better decisions and, at the end of the day, investing is a probabilistic endeavor so it’s all about making the best decisions possible. Felix and David also discuss concentration, sector diversification and alignment. Circle of competence makes another reappearance with a significant role to play in risk assessment at the portfolio level as well.

Key Takeaways

01:08 When it comes to managing risk at the portfolio level, the biggest thing Pender has done over time is cash management. Having cash on hand helps make better decisions.
04:38 Felix expands more on Pender's approach to concentration levels: Concentration by itself doesn't guarantee great results, but it's one of ways that we believe gives you at least a chance of producing a good result.
08:59 How does circle of competence tie back into this discussion about risk management at the portfolio level?
10:07 The key driver for portfolio inclusion is IRR rate. What are some of the IRR constraints?
13:21 Market cap constraints are a factor of how the industry is structured.
14:20 What is an acceptable loss of capital? David talks through some different scenarios to illustrate.
15:57 Sector diversification. Circle of competence comes into play again to put Pender in areas where we have an edge.
18:53 Every company is a digital company, whether they know it or not.
21:25 The last aspect of risk management at a portfolio level is alignment.

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