A lot of investors have made significant investment losses in the past. Supposedly 80 percent of the private investors lose money when investing. This gives private investors negative portfolio and investment returns. Which in the long run results in investment losses and a negative return on investment.
The reason lies in the actual cost of recovering investment losses. Warren Buffet has a famous statement :
“First rule with investing? Never lose money. Second rule of investing, never forget rule one”
Warren Buffet made this famous statement, because avoiding investment losses is the most important aspect of investing.
The recovery of an investment loss is significant, if you lose 50% of your portfolio’s capital, your portfolio will need to gain 100% to cover your portfolio’s loss.
It’s all about mathematics…. For example a 75% portfolio loss will need to be covered by a 300% gain to get your portfolio’s capital back to the level where it was before the 75% loss.
There are several ways to limit the possibility of a portfolio loss, limit? Yes limit. In case of the crash of 2008 there were very minimal portfolio’s, which did not report a loss. The average portfolio loss in 2008 has been more than 50%.
By applying risk management and money management strategies investment losses can be reduced to a minimum. Warren Buffet for example minimized his investment losses in 2008 to only 9, 6%. He “achieved” this by applying a margin of safety on his investments. He also used the 2008 crash as an buying opportunity…..Buying value for 50 cents on the dollar. Which also explains what value investing is about……