The Law of Large Losses \u2013 Why Risk Management Is EVERYTHING!<\/p>\n\n\n\n
Ever wondered why losing money hurts more than gaining it feels good?<\/p>\n\n\n\n
Here\u2019s a simple truth from investing:<\/p>\n\n\n\n
The deeper the loss, the harder the recovery.<\/p>\n\n\n\n
Check this out:<\/p>\n\n\n\n
\ud83d\udd3b Lose 10% \u27a1\ufe0f Need +11% to break even
\ud83d\udd3b Lose 20% \u27a1\ufe0f Need +25% to break even
\ud83d\udd3b Lose 33% \u27a1\ufe0f Need +50% to break even
\ud83d\udd3b Lose 50% \u27a1\ufe0f Need +100% to break even
\ud83d\udd3b Lose 60% \u27a1\ufe0f Need +150% to break even!<\/p>\n\n\n\n
That\u2019s the Law of Large Losses \u2013 every % down requires even more % up to recover!<\/p>\n\n\n\n
Example:<\/p>\n\n\n\n
Suppose you bought 1000 shares of NETSOL at Rs 240. Take for example market starts a bearish trend and NETSOL price takes a dive. For some reason you don’t apply a stop loss and believe that NETSOL is a strong company and assume that the price will recover quickly. The price goes down to Rs. 96 which translates into a 60% loss. <\/p>\n\n\n\n
The price moves around this price range for the next one to two years and then market starts to rebound and NETSOL price starts to increase. Now the price will need to increase by 150% from Rs 96 so that you can break even at Rs 240. <\/p>\n\n\n\n
If you had applied stop loss at say Rs 200 you would have suffered a Rs 40,000 loss however you could have saved that capital and then re-invested the same amount in NETSOL at Rs 96 where you would have gotten double the number of shares and not only would you have re-gained your loss amount in a much shorter time you would have gotten a handsome profit.<\/p>\n\n\n\n
So the lessons learned are::<\/p>\n\n\n\n
Protect your capital \u2013 don\u2019t chase risky gains.
Use stop-losses and diversify.
Small losses are manageable \u2013 big ones are dangerous.
Discipline beats emotion in investing.<\/p>\n\n\n\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
The Law of Large Losses \u2013 Why Risk Management Is EVERYTHING! Ever wondered why losing money hurts more than gaining it feels good? Here\u2019s a simple truth from investing: The deeper the loss, the harder the recovery. Check this out: \ud83d\udd3b Lose 10% \u27a1\ufe0f Need +11% to break even\ud83d\udd3b Lose 20% \u27a1\ufe0f Need +25% to […]<\/p>\n","protected":false},"author":1,"featured_media":112,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"zakra_page_container_layout":"customizer","zakra_page_sidebar_layout":"customizer","zakra_remove_content_margin":false,"zakra_sidebar":"customizer","zakra_transparent_header":"customizer","zakra_logo":0,"zakra_main_header_style":"default","zakra_menu_item_color":"","zakra_menu_item_hover_color":"","zakra_menu_item_active_color":"","zakra_menu_active_style":"","zakra_page_header":true,"footnotes":""},"categories":[4,7],"tags":[],"class_list":["post-111","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-education","category-technical-analysis"],"_links":{"self":[{"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/posts\/111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/comments?post=111"}],"version-history":[{"count":1,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/posts\/111\/revisions"}],"predecessor-version":[{"id":113,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/posts\/111\/revisions\/113"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/media\/112"}],"wp:attachment":[{"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/media?parent=111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/categories?post=111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.invest92.com\/blog\/wp-json\/wp\/v2\/tags?post=111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}