We tend to greet market turbulence with alarm. But risk and opportunity are two sides of the same coin. We can’t have good investment opportunities without risk. In investment circles, we speak of a “risk premium”, for which investors expect an additional return as recompense for bearing uncertainty.

Let’s examine the interplay between risk, return and human nature. When markets are calm, it’s easy to be seduced by the view that it’s OK to take on more risk. When markets become turbulent, it’s just as easy to get rattled and take risk off the table. Both of these natural reactions are dangerous.