By
Borsgade
In this article, Aswath Damodaran, Professor at NYU, discusses how we as investors can factor in the risk of catastrophic events for the companies we either already own or are considering adding to our portfolio.
One of the examples he cites is the company, Blue Lagoon, a well-regarded Icelandic spa with a history of high profitability, which found its existence threatened by volcanic activity in southwest Iceland. Another interesting example is the climate change/ESG risk when investing in oil and gas companies.
To the extent that all businesses are exposed to catastrophic risks, some company-level and some having broader effects, there are actions that businesses can take to, if not protect to themselves, at least cushion the impact of these risks. A personal-service business, headed by an aging key person, will be well served designing a succession plan for someone to step in when the key person leaves (by his or her choice or an act of God). […]
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