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How important is protecting your capital?  Turns out – it’s pretty important.

The Law of Percentages is against us as investors.  Minor losses require larger gains to break-even.  That fact is illustrated in the chart below and demonstrates the importance of avoiding the nasty stuff:

Good days typically lead to more good days and bad days lead to more bad days.  It’s a self-reinforcing feedback loop.

Do you have a process for determining whether the current feedback loop is positive or negative, and when negative, can it help protect capital?

Avoiding the big “Left Tail” events proves itself extremely beneficial.  We believe an objective, Rules-Based process gives investors a chance to side step some of the negative environments that are inevitable.  The process doesn’t have to be perfect, but should be supported with evidence and research.

Check out the table above…2008 dominates the list!