“Risk aversion is an essential element in investing. People’s aversion to loss causes them to police the markets. Because most people are averse to risk: they approach investing with caution, they perform careful analysis when considering investments, and especially risky ones, they incorporate conservative assumptions and appropriate skepticism into their analysis, they demand greater margins of safety on risky investments to protect against analytical errors and unpleasant surprises, they insist on healthy risk premiums—the expectation of incremental returns—if they’re going to undertake risky investments, and they refuse to invest in deals that make no sense.”