The charts below show why you should lose as little as possible during the course of your investing life. Wallstreet will never tell you this - investment loss/gain asymmetry. Every 1% loss you incur, you will need more than 1% gain to recoup your loss.
To recoup a 25% loss, a 33% gain is required.
To recoup a 50% loss, a 100% gain is required.
Same goes to the opposite scenario.
To wipe out a 50% gain, only a 33% loss is required.
To wipe out a 100% gain, only a 50% loss is required.
Remember life is always unfair, same goes to investment. Risk management is an important component of one's investing life. Value investing is known as one of the most successful investing strategies in the history. Why? That's because an experienced value investor truly understands the concept of margin of safety. The power of compounding effect works beautifully only when the losses are minimized during the course of one's investing life.
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