Priority #1: Manage Risk
With this morning's bloodbath, it's a good time to remember how important it is to manage risk.
George Soros once said,
"I'm not better than the next trader, just quicker at admitting my mistakes and moving on to the next opportunity"
The Chart below shows the percentage gains needed to recover losses. WSJ - "If an investment declines 10%, it takes about an 11% gain to break even (assuming you don’t pump in additional dollars). If the drop is 20%, you need a 25% gain to recover. A fall of one-third requires a rebound of 50%. And if your investment falls by half, “you need a double,” or a 100% return, says Mr. Wiener, the New York-based editor of the Independent Adviser for Vanguard Investors. The recovery percentages grow exponentially because you have so few dollars working for you after a big loss.
Source:
The Cruel Math of Big Losses (Wall Street Journal)
