Small Losses Are Easy to Recover
Imagine falling into a pit that is just five feet deep, you can get out easily and move on. But if the pit is 15 or 25 feet deep, getting out becomes very hard without help. The same applies to your stock market portfolio. If your losses are small, you can recover quickly. But if your portfolio goes down too much, coming back becomes very difficult. You might need to put in more money or just get lucky to recover from such deep losses.
The Math Gets Harder as Losses Grow
If you lose 10%, you only need an 11% gain to break even. A 20% fall needs a 25% gain to recover. These are still manageable. But after that, things become tough. A 30% drawdown means you need 43% returns to get back. At 40%, you need 66%. If you lose 50%, you need to double your money. At 70%, you would need a 233% return—almost impossible in the short term (see image below). This is why it’s so important to stop the damage early.
You Must Decide When to Cut Losses
As your portfolio goes lower, you have to decide, should you let the losses continue or cut your position and protect what’s left? If you keep holding and go too deep, recovery may not be possible. Unless you find a stock that magically gives you 150% or 200% returns, you are unlikely to bounce back quickly. But if you avoid deep drawdowns, even a 25% gain can help you recover in a few months.
Deep Losses Also Affect Your Mindset
The problem is not just financial—it’s also emotional. As your losses grow, your confidence goes down. You may feel hopeless and start thinking, “I’ve lost 70%, what’s the point?” You might stop caring, and that’s when you give up on long-term growth. Staying positive becomes harder. This mental damage is just as harmful as the financial loss.
Don’t Expect the Same Stocks to Help You Recover
Stocks that cause big losses are usually not the ones that help you recover. You might need to change your portfolio and pick better stocks. But even then, recovery is tough if you’re already 60-70% down. This creates a trap. That’s why it’s better to cut the rope early and stop the bleeding before it gets worse.
What’s been your experience during deep market drawdowns? Did you recover or cut your losses? Share your thoughts in the comments below! If you found this blog helpful, don’t forget to SHARE it with your friends!
