Value Investing, Videos

Aswath Damodaran – Session 5 (MBA): Risk and Return – First Steps

Aswath Damodaran – Session 5 (MBA): Risk and Return – First Steps

Published on Feb 17, 2016

In this session, we start on understanding and measuring risk, as a precursor to coming up with hurdle rates. Here are some themes.
1. The Essence of Risk: Risk is neither good nor bad. It is just a fact of life. As the Chinese symbols indicate, it is a combination of danger and opportunity.
2. More on Models: The oldest and still-default model for measuring risk is the CAPM but it does require lots of assumptions before you get to beta being your measure of risk.
3. Diversifiable versus non-diversifiable risk: The best way to understand diversifiable and non-diversifiable risk is to take your company and consider all of the risks that it is exposed to and then categorize these risks into whether they are likely to affect just your company, your company and a few competitors, the entire sector or the overall market.
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