We’re wired to fear shark attacks and market crashes, not lawn mowers and slow bleed portfolios. This week: why your brain is terrible at judging investing risk, and how the real danger in your portfolio probably isn’t what you’re afraid of.

Let’s get into it →

Worried about losing money when investing? You’re not alone.

In just 30 minutes, we’ll look at where you are now (cash, existing investments, or just ideas) and walk through how a simple, quality-focused approach to investing could work for you.

It’s not a shark, or a lion, or a bear. It’s a mosquito. Of course it is, once you think about malaria and dengue and all the rest. But if you just ask your brain, without warning, it will probably cue up the opening scene of Jaws, not an itchy bite.

How about this: you are two thousand times more likely to die in a car than in a plane, but most people feel more afraid during take-off than when they slide into the back of an Uber at 1 a.m. This paradox happens because our brain is very badly equipped to evaluate risks.

Unfortunately for us, in the stock market, we run exactly the same mental software. We obsess over the financial equivalent of the plane crash, and largely ignore the “car crash” scenarios.

What is “risk,” anyway?

In the textbook sense, it’s the chance that something uncertain happens and makes you worse off. Big emphasis on the “uncertain” bit here. Risk is about what might happen, not what is going to happen for sure.

If you jump out of a plane with no parachute, that is not “taking a risk.” That’s just…a plan with one very reliable outcome. You’re not risking your life, you’re surrendering it.

Markets use the word “risk” the same casual way. We say “inflation risk,” “recession risk,” “business cycle risk,” “climate risk.” But zoom out far enough and these are not really risks, they’re scheduled features of the system. Those aren’t “maybe” events; they’re more like the economic equivalent of gravity.

In principle, evaluating risk is boringly simple. It’s a two-input formula:

In practice, our brains mostly throw away the first input. We obsess over the severity (death, injury, bankruptcy…) and largely ignore the probability. So we dramatise rare but cinematic disasters, and tune out the stuff that happens all the time.

That’s why airline pilots are not generally terrified of flying, and nuclear engineers can go to work without breaking into a sweat. They’ve had exposure, they’ve looked at the probabilities. We, the public, have seen the movie.

Meanwhile, the dull, local, statistically powerful things barely register: pesticides in food, weird chemicals in everyday products, UV rays, a diet that’s 70% sugars and fats. None of these feel like “events”; they feel like background noise. But if you talk to the people who study them, they know the risk is very real. They would tell you to be afraid.

Markets are the same story. People who have spent time with diversification, long-term returns, and how businesses actually compound value tend to think equities are…manageable. Not safe, but by no means a death trap.

On the other hand, people with no financial education often see “the stock market” as a giant casino interface: you play stocks, it’s 50/50, you either “win” or “lose,” and somehow it’s all zero-sum.

Back in the 1970s, the psychologist Paul Slovic basically set out to answer the question: “Why are we terrified of the wrong things?” Why does “nuclear” sound apocalyptic while “Saturday afternoon with a beer and a power tool” sounds…nice?

He had people rate various activities and technologies on a bunch of dimensions:

The pattern was pretty clear. People are much more afraid of things that feel dangerous, mysterious, and out of their control: nuclear power, pesticides, surgery. The stuff they’re least afraid of? The opposite. Familiar, voluntary, everyday things where you feel like you’re in charge: drinking beer, biking, mowing the lawn.

Unfortunately, it’s that second category that quietly does most of the damage. In the US, lawn mowers alone kill dozens of people and injure tens of thousands every year. That’s more than snakes, spiders, crocodiles, sharks, bears, dogs, and lightning combined. But we still don’t have horror movies about lawnmowers.

What Slovic showed is that our sense of danger isn’t really derived from statistics; it’s derived from emotions.

If our brains were strictly rational, they’d be more worried about sugar and sitting than about snakes. But the brain we’ve got wasn’t built in a world of sofas and fridges. It was built for “that rustle in the bushes might be a tiger” and “that rock might fall on my head.”

Modern dangers don’t look like that. They’re slow, familiar, and wrapped in personal choice. You decide what to eat, when to drive, when to smoke, how many hours to sit at a desk. Because it feels voluntary and under control, no internal sirens go off.

In the stock market, everyone talks about “risk.” But which risk? Mostly the photogenic kind.

Open your favourite finance site and the headlines are always some version of Crash Ahead?, Is This a Bubble?, Will Country X Default? It’s all very cinematic: crashes, bankruptcies, sovereign crises.

And fair enough: market crashes are scary. They’re hard to predict, poorly understood, extremely painful when they happen, and very visible when they do. They make for good TV.

But in markets, as in life, the really dangerous risks are usually the slow, boring ones. The ones with high probability and low drama. Things like:

Think about the long, grinding stories: Macy’s slowly bleeding customers to Zara, H&M, and Amazon until, 30 years later, the stock is basically where it started. Or the consumer darlings: Nike, Gap, Disney… The list goes on.

None of these produce a viral panic. They produce -10% here, -5% there, a lot of “dead money” charts and disappointed long-term holders. Ten years later, you wake up and the stock is down 50%, and no one can point to a single dramatic moment where it all went wrong.

So, how do you avoid these risks? You check up on your portfolio once in a while.

The market’s big, obvious risks are scary; the ones that really hurt your returns usually arrive disguised as “nothing much happening.”

The RatedA Portfolio is beating the market. You could too.

Members receive full updates on all our buys and sells, expert insights, as well as carefully selected stock recommendations to help you invest like a pro.