Yesterday, at the Morningstar conference, I discussed why people — especially when acting as investors — tend to misunderstand risk. The reasons tend to be the same: We allow visceral things that carry a large emotional component to overwhelm our thought processes and cause a massive fear response.
These responses, according to evolutionary biology, helped keep our ancestors alive long enough to procreate . . . but they interfere with our off label usage of our brains in capital markets.