USA Today – Rule No. 1 of investing, as Berkshire Hathaway chairman and CEO Warren Buffett famously put it, is to never lose money; rule No.2 is never forget rule No. 1.
As intuitive as this rule is, it’s not actually straightforward in practice. The market moves in mysterious ways, and almost without exception investment involves the risk of partial or total loss. Equity investors are perhaps the most exposed, but as the financial crisis reminded us, even high-quality debt investments can go bad. Add to this human error and bad judgment, and you have an investment environment where losses are not just common but are expected to occur for almost everyone, at least some of the time. This is particularly true in the risk-on world of equity investing.
