Here's a fact that surprises almost every new investor: a loss and the gain needed to recover it are not the same size. The deeper you fall, the disproportionately bigger the climb back. This single piece of arithmetic is why protecting capital matters more than chasing returns. This is for learning only.
The recovery table
| If you lose… | You need this gain just to break even |
|---|---|
| 10% | +11% |
| 20% | +25% |
| 33% | +50% |
| 50% | +100% |
| 75% | +300% |
| 90% | +900% |
Lose half and you don't need to make half back — you need to double just to return to where you started. Lose 90% and you need a tenfold gain. The hole gets exponentially harder to climb out of the deeper it goes.
Why this changes how you should invest
It flips the usual instinct. Most people obsess over maximising gains. The maths says the first job is to avoid the catastrophic loss, because a big drawdown doesn't just cost money — it costs the years of compounding needed to recover it.
How disciplined investors protect against it
- Cut losses early with a stop-loss, so a small mistake never becomes a 50% disaster.
- Size positions small (see position sizing), so no single name can inflict a deep wound.
- Diversify across sectors, so one blow-up can't sink the whole portfolio.
The quiet secret of long-term compounding is survival: don't take the loss you can't recover from. That defensive discipline is built into our rule-based Model Portfolio — risk is defined before any position is taken.
Stop-loss: the simple rule that keeps small losses small
The difference between investors who survive and those who blow up is often one habit — the stop-loss. Why big losses are so hard to recover.
Rebalancing: the quiet habit that keeps your portfolio from drifting
Over time your winners grow and quietly take over your portfolio, raising risk without you noticing. What rebalancing is, how it works, and how often it helps.
What makes a multibagger stock — and why chasing them is risky
What multibagger stocks have in common, why they are impossible to spot in advance with certainty, and why chasing them can quietly damage a portfolio.
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