Business risk tolerance determines portfolio

Author: Michael Pagliari, James Kirk (

Categories: Business Growth, Business risk, Getting advice
Tags: draw-downs, portfolios, risk, risk tolerance, sharp ratio
Business risk should be assessed before making investments or giving investment advice. In this TV show Michael Pagliari discusses building portfolios according to risk tolerance.

No assumptions on business risk

It’s very important because if I make some assumptions about your risk appetite I may go off on a tangent, I may suggest investments that are inappropriate, that are too risky or are not risky enough, so it’s very, very important for me to understand your risk tolerance.  And by risk tolerance I mean what sort of draw-downs you could sustain without it causing you any problems.  So there are technical terms like ‘sharp ratio’ which measure the amount of volatility that you will accept in your underlying portfolio, but as I say I don’t think it’s not just a process about numbers, it’s actually a process about understanding the levels of those draw-downs. One further point I’d make is that a lot of clients have a sort of wealthy clients have an asymmetric risk profile, so in other words they have a greater sensitivity to making losses than to making gains and I think it’s careful that you, it’s very important that you try to build a portfolio that has some asymmetric qualities to it.  In other words when it goes down, you don’t suffer massive draw-downs, even at the expense of missing out on some of the upsides when markets rally. Investment does involve risk. The value of investments can go down as well as up. This video contains information believed to be reliable but no guarantee is given. See Video for full disclaimer. If you are interested in discussions around business risk, please explore more great free content on Inside Finance TV.
Related videos