Risks: Internal and External

Denis Kessler, Chairman and Chief Executive Officer of the French reinsurer SCOR Group, said in its half-year earning report:

The emphasis within the SCOR Group is now on the deepening and widening of risk management in all areas. Whether in underwriting policy, retrocession, investment management, capital allocation and capital structure, or the monitoring of major natural, technological, social and medical risks, the SCOR Group is doing everything in its power to control its exposures, optimise the diversification of its portfolio and fine tune its hedging in order to strengthen its solvency.

My read: both internal and external risks are being managed. The statement should be true for us individual investors as well. We need to have a mechanism to identify, monitor and mitigate risks that are both internal as well as external. We tend to pay a lot of attention to avoid external risks (what if the market tanks) because it is relatively easy to do. The internal risks, however, can be as destructive as well, if not more so. The examples include avoiding emotions and applying self discipline with regard to diversification and using margin, the danger of averting to random trading (the urge to do something), and so on.