Rule number one: survive

Every successful investor has one thing in common: they never lost so much that they could not continue. If you have no chips left, you cannot play the next hand.

The maths is not symmetrical

A loss of 10% needs a gain of 11% to recover. A loss of 50% needs 100%. A loss of 80% needs 400% — which can take a decade or never happen.

This is why the maximum drawdown matters as much as the average return. Two portfolios with the same average return can end up very differently if one of them suffers a deep crash along the way.

How survival looks in practice

• No leverage you cannot hold through a crash. Borrowed money can force you to sell at the bottom.
• No single position that can sink you. One company can go bankrupt; a broad index cannot in the same way.
• A cash reserve outside your investments, so you are never forced to sell to pay the rent.
• A rule for big downtrends. Holding through a 50% crash is possible; doing it calmly is rare. A trend-following rule decides in advance when to step aside.

Calculate it yourself: drawdown recovery calculator.

By Dr. Harry Hamann · 4 min read