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Sunday, January 12, 2014

Weekly Investment Term #2

During most of the studies related to investment, some risks will be mentioned such as credit risks, liquidity risks, and many more. 

Here is one new term that I learned throughout this week though...the "reputational risk"

If you have not heard of it, this will be important because reputational risk is a hidden danger that can hurt and pose a threat of survival to even the biggest and best-run companies. The problem with reputational risk is that it could erupt out of nowhere without much sign to investors. It is difficult to quantify the risk as well but it is important.

Reputational risk can also arise from the actions of errant employees, such as the massive trading losses disclosed by some of the world's biggest financial institutions from time to time. In an increasingly globalized environment, reputational risk can arise even in a peripheral region. There are a few ways for investors to look at when considering reputational risk.

Look at how the company mitigate the damage by taking prompt damage control measures via instant communication and social media networks. With the current availability of instant communication in this modern age, companies must ensure prompt action is taken as the risk can be insidious and could last for several years. 

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