Like many of you, I watched the news of the missing Titanic submarine with a mix of curiosity and horror. However, I also did so with a career of experience in managing risk in the oil and gas industry.

OceanGate CEO Stockton Rush, the owner of the submarine, once told a reporter that “at some point, safety is just pure waste.” There is actually some truth to that statement, but it can also be a very dangerous statement. Let me explain the difference.

The Science of Safety

There is a lot of science involved in designing safe systems. There are often known probabilities of catastrophic failures, and we weigh the consequences of those failures. Then, we make a determination whether to mitigate that risk.

Here is an example I sometimes use to illustrate that point. Let’s say you are designing a storage tank to hold a million gallons of gasoline in a refinery. You have to consider the kinds of things that could cause a catastrophic failure and fire to that tank.

For example, lightning strike is a very real possibility. So, those tanks are grounded with this possibility in mind. That’s a reasonable mitigation against a catastrophic failure from a lightning strike.

But a meteorite could also strike the tank. However, the odds of this are very low, and the cost to try to mitigate against this would be astronomical. So, we mitigate against lightning strikes, but not the far more remote (but potentially more disastrous) consequences of a meteorite strike. This is what the OceanGate CEO probably meant when he said at some point safety is pure waste.

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However, I have worked with people who might even view grounding a gasoline storage tank as pure waste. This is where that kind of thinking can be exceedingly dangerous. Spending a reasonable amount of money to protect against loss of life and property isn’t pure waste. It’s potentially saving lives.

Safety always comes down to a cost/benefit analysis, but there can be very different viewpoints on whether the cost is worth the benefit. Undoubtedly, the passengers of this submarine were unaware of the company’s attitudes on this question.

Red Flags

Beyond the CEO’s general comment about safety being pure waste, there were some major red flags that have been reported about this submarine. The widely reported “off-the-shelf video game controller” doesn’t concern me nearly as much as the following issue.

The big one that caught my attention was the pressure rating. As someone who has designed many pressure vessels, the pressure rating is critical. The viewport on the submarine was reportedly only built to a certified pressure of 1,300 meters, even though the submarine was intended to go down to 4,000 meters in depth. That’s the biggest red flag imaginable.

The CEO had been quoted as saying that life is about taking risks. It’s true that there is inherent risk in all aspects of our lives. But whereas you might escape harm if you fail to wear a seatbelt in your car, grossly exceeding a pressure rating is a surefire prescription for disaster. That’s like failing to wear your seatbelt while driving at high speeds in heavy traffic during a rainstorm. You are inviting disaster.

Lessons for Investors

The lessons here about risk can also apply to our portfolios. Investing involves risk. But just like with this submarine, you need to understand the difference between managed risk and recklessness. It basically comes down to the difference between investing and gambling.

The passengers on that submarine placed their lives in the hands of those who designed and tested the sub. They were undoubtedly unaware of the high level of risk they were taking.

The metaphor “Don’t put all your eggs in one basket” is a lesson about managing risk through diversification. This won’t protect you from risk, but it can help avoid recklessness.

Any investor can manage risk by putting all their money in government bonds. That’s like managing risk by never stepping outside your home. Or, they can put all of their savings into cryptocurrency. That is where risk would slip into recklessness.

You can easily slip from managed risk into recklessness by investing in securities you aren’t familiar with, being improperly diversified, or by allowing the wrong person to manage your investments.

Life certainly involves risk. But there’s a vast gulf between reasonable risk and recklessness. You will greatly enhance your chances of staying alive — and keeping your portfolio intact — if you know the differences between the two.

PS: Looking for growth opportunities in this uncertain market? I suggest you follow the advice of our colleague, Dr. Stephen Leeb.

As chief investment strategist of The Complete Investor, Dr. Leeb has produced a special report on how to not only survive, but also thrive during the tectonic shifts facing the financial world. Click here for details.

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