Always cover the downside first
“Rule No.1 is never lose money. Rule No.2 is never forget rule number one.”
- Warren Buffett
The astute investors all know – “Covering Downside” is the first priority when making investment decisions. Just like the “rules” that Warren Buffett has been advocated.
We can take a look at a simple example bellowed that demonstrates the affect of “losing” and subsequent “effort” that is needed just to make it back to where things were before.
If the initial lost is 5% then just a little bit more than 5% of “winning” needed to compensate that lost. However, when the lost started off at 20% then 25% is needed, 50% vs 100% … etc.
Smart investors like you know, when looking at investment opportunities, always consider the possible “downside” – the risk first.