Never lose money is the first and second rule of investing. It is very important to keep losses in the financial markets to a minimum. Why? Because it is very difficult to regain out-sized losses. The losses are asymmetric and exponential. Let me show you the basic math. The first chart shows how much percent gain is required (left axis) to get back to square one after X amount of loss (horizontal axis). A 50% loss requires a sequential 100% gain just to break even. The columns show how much percent gain is needed for an additional 1% loss at each level. So, a 300% gain is needed to reverse a 75% loss and an additional 1% loss at that 75% level requires a 16% additional gain to take it back where it was.

Now to the interesting part. What if we calculate the inverse of the first chart. The second chart shows how much loss, after an X amount of gain, takes you back to where you started. If you have a 10% gain, a mere 9.09% takes you back to even. After a previous gain of 25%, a loss of 20% wipes it all out. The columns show how much percent loss is needed for an additional 1% gain at each level. So, a 10 percent decline can be more than a 10 percent correction and a 20 percent plunge can be a bit more than a bear market. In other words, out-sized gains can be quickly reversed.