“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
This is another great quote from Warren Buffett that can be applied to so many different aspects of our lives. Let’s look at it just from an investment management perspective though.
It is important that we try and limit being wrong as much as possible, or said another way; to invest as carefully as possible to avoid large draw-downs in our portfolios. When a portfolio drops in value it must gain that much more in value just to get back to even
If you start with $100 and lose 50%, you now have $50. What happens when your investment bounces back 50%? You only have $75. You need a 100% return on your $50 investment just to get even. Limiting losses is just as important as trying to generate gains.
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