Risk

Tancredi C di Montezemolo | November 2025

Life does not distribute normally. We are taught otherwise from the moment we walk into an economics class: the first day our institutionalisation truly begins, the first dose of medications meant to dull common sense with the language of certainty.

But this indoctrination is not bestowed only on those who undergo the unfortunate didactical calvary of modern economics. Our everyday language is riddled with the same ordinary disease. Think about the incessant use of the word “normal” in every language, the root of which can be traced back to the Latin norma: a carpenter’s square, the idol of a perfect right angle. One of the words we use most, then, describes an object we mistake for reality. Indeed, there is no such thing as a perfect geometric form in nature. The “standard” as we mundanely conceive it is a figment of our imagination, nothing more. To be normal is to not be.

Nevertheless, we obsessively and relentlessly try to squeeze round pegs into square holes. Why is that? We are frightened by that which we cannot comprehend, and by that which is unknown - at least most people are. Standardisation is a tranquilliser: a tonic for our ever-spinning, thought-overbloated mind. And this is how perceived risk becomes a social sin, while real risk - ruin - walks in quietly.

We hate losing more than we hate not winning - and no, it’s not wordplay; it’s a diagnostic. Kahneman and Tversky put it plainly in prospect theory: losses loom larger than gains, so we will gladly pay a premium to avoid the emotional sting of being wrong. Put that bias inside the modern asset-management machine and you get a predictable pathology: career risk masquerading as investment policy. Most managers are not paid to be right; they are paid to be safely wrong in a group, to hug the benchmark, minimise tracking error, and call it “prudence.” The scoreboard is painfully unromantic. S&P Dow Jones Indices’ SPIVA Europe Year-End 2024 scorecard reports that, on a cross-category, fund-weighted basis over a 10-year horizon, 93% of equity funds and 79% of fixed income funds underperformed their benchmarks. Morningstar’s Active/Passive Barometer found that only 33% of the active funds in its sample survived and outperformed their average passive peer in the 12 months through June 2025. In other words: excessive risk aversion does not buy safety; it buys mediocrity - reliably, repeatedly, and at a management fee with carried interest on top. Let’s not be too stingy.

This is not an exclusive trademark of the fund-management world. It is a universal human stigma, encoded deep in our reptilian circuitry: a preference for avoiding pain over pursuing possibility. And when it comes to “managing risk,” our birth is often also our epitaph. Choosing spouses, schools, careers, friends, investments, even meals; deciding whether to lay up or go for the green on a tricky hole in match play when you are one down with three to play. Again and again, we forgo the chance of winning simply to avoid the sensation of losing. The tragedy is that this does not eliminate risk; it merely converts it into a slower, quieter kind of failure - mediocrity by design.

The Romans understood this psychology long before behavioural finance gave it footnotes. Consider Fabius Maximus, immortalised as the Cunctator, the Delayer. In the face of Hannibal, he refused the glorious, decisive battle that public opinion was crying for. He accepted the reputational cost of looking timid in order to avoid the real risk of ruin. That is what serious risk management looks like: swallowing social discomfort to prevent permanent impairment. Then take Scipio Africanus, who did the opposite at the right moment: he brought the war to Africa, a move that looked reckless until it forced Hannibal home and reset the strategic geometry. Both men took risk, but neither took the same kind. One absorbed social shame to buy survival; the other accepted operational uncertainty to create asymmetric advantage. Their genius was not bravado. It was calibration.

That calibration is precisely what most investors - and most lives - lack. We confuse volatility with danger, and discomfort with downside. So we buy emotional insurance in the form of consensus: diversified to the point of meaninglessness, benchmarked to the point of paralysis, and governed by the fear of looking wrong rather than the fear of being wrong. It is a strangely modern bargain: trade freedom for the appearance of safety, then wonder why the returns are anaemic. The world does not punish you for taking intelligent risk; it punishes you for being fragile. And fragility rarely announces itself. It arrives quietly, wearing the costume of “normal.”