What Kills You and Your Investments
You don’t understand risk.
I don’t mean you, in your professional capacity. I mean you, the human being whose brain is desperately trying to keep you alive. An endless procession of mortal threats is trying to end your particular genomic variation, forcing your brain to respond first and think later.
Your existence is threatened by hungry predators, roving bands of Neanderthals, poison mushrooms and all manner of germs.
What’s that you say? You don’t live on a savannah where lions hunt, and there haven’t been any Neanderthals for 30,000 years?
That is irrelevant to your risk-calculating engine. Your wetware was optimized during a period when those were the highest potential threats to your well-being. Humans who failed to avoid those didn't manage to pass on their DNA, becoming someone else’s lunch.
Let’s look at some of the world’s top predators as an example of risk in the modern world. Start with the shark, that fearsome, perfectly evolved eating machine. Immortalized in Steven Spielberg’s 1975 film, ``Jaws,'' and star of the Discovery Channel’s ``Shark Week,'' “the longest-running cable television programming event in history,” according to the Wall Street Journal. Can you imagine how many humans are devoured by this fearsome predator each year?
That’s right, less than a dozen of the 7 billion people on the planet succumb to death by shark each year.
Well, we live on land, what about lions? About 100, and most of those people live right there in the lion’s habitat, that savannah mentioned a few paragraphs earlier.
There are other large predators that each year manage to whittle down a few off of that 7 billion number: Elephants (100), hippos (500), crocodiles (1,000), snakes (50,000). Even man’s best friend, the dog, is responsible for 25,000 deaths, almost all because of rabies.
If you really want to fear a killer, let me suggest two that actually move the needle in terms of human mortality: Human beings themselves are responsible for almost a half-million deaths annually. They come in second. The planet’s apex murderer, the creature who offs more people than any others? Mosquitoes. They take out almost three-quarters of a million humans a year by spreading a variety of deadly diseases, including malaria, dengue fever, yellow fever and encephalitis.
Back to humans. Are many of those deaths related to terrorism, which some of us think will take us out?
The U.S. Centers for Disease Control and Preventiontracks data on the various causes of death in the U.S., ranked by prevalence. While terrorism has dominated the political and policy debate ever since the Sept. 11 attacks, reality is far more mundane.
You are 35,079 times more likely to die of heart disease and 33,842 times more likely to die of cancer than a terrorism attack.
That’s at home. If you go overseas, the numbers are no different. As noted earlier this week, the U.S. State Department reported that “only 17 U.S. citizens were killed worldwide as a result of terrorism in 2011. That figure includes deaths in Afghanistan, Iraq and all other theaters of war.” The leading cause of deaths for Americans traveling abroad, according to the Center for Disease Control, is car crashes.
All of this adds up to lots of fascinating data, but what does this have to do with investing?
Plenty. It turns out that investors fear things that are relatively rare, such as market crashes. They also ignore little things that are likely to do damage over the long term, namely trading too much, paying too much in commissions, generating a big and unnecessary tax bill.
These are the cholesterol of investing. They won’t kill you tomorrow in a spectacular fireball or shark attack. But they will kill you in the end, slowly and quietly, and with great finality.
No, you don’t understand risk. If you did, you would live longer, have less fear and, eventually, a much bigger investment portfolio.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the author on this story:
Barry L Ritholtz at firstname.lastname@example.org
To contact the editor on this story:
James Greiff at email@example.com