The definition of "risk" is - The possibility of suffering harm or loss; danger.
The relative perspective of investment risk is a subject of interest of mine. The abnormal way people consider risk can be explained by an example... If someone suggests taking a large (> 50% of your portfolio) position in a certain company, some people's automatic response is to imagine the worst possible outcome for that company, like "what if the CEO walks outside and gets hit by a bus?" or "what if one of their products is found to cause cancer?" etc. The possibility of one these highly improbable occurrences happening is near zero, so why do people seriously consider these possibilities as realistic? It's because risk is relative. But when it's taken into the perspective of reality, we can ignore the outlying data points and assume the norm will happen. At least thats what I do whenever I board an airplane.
A general rule I like to follow when considering the level of risk I'm exposing myself to is a saying by Warren Buffet. "Risk comes from not knowing what you're doing. " The more deeply you understand a situation, the less risk exists.
