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What’s first strategy or risk appetite?

A regular feature in the Investors Chronicle is a column called “Portfolio Clinic”, it evaluates a reader’s investments, appetite for risk and their retirement plans. Often the reader gets a shock – their assumptions about risk and return do not match and they are forced to adjust their plans. In this way investment strategy and risk appetite are inextricably linked.

Businesses too have strategies that are closely connected with the risk they are prepared to assume. Firms that need to operate with tight safety, (nuclear power, refining, aircraft manufacturing), have strategies that recognise this as failure is costly – Tokyo Electric, BP, Boeing.

In entrepreneurial sectors (technology, pharmacology, alternative energy) the strategy recognises greater variance in returns and the risk appetite accommodates.

On this scale I’m sure we would agree that building societies are “conservative”. But does risk appetite drive strategy or vice versa? (A thought-provoking question for any NED).

Read more here: Strategy or Risk Appetite?

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