PRESERVE CAPITAL
“The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued.” Adam Smith
“Not how much you can make, but how much you can lose.” Dickson G Watts
“I repeat: There is no real safety without preserving purchasing power.” Sir John Templeton
“The first rule of investment is don’t lose money. And the second rule of investment is don’t forget the first rule. And that’s all the rules there are.” Warren Buffett
“As Warren Buffett has advised, the first rule of investing is, don’t lose money. The second rule is, don’t forget rule number one.” Christopher Browne
“Avoiding loss is the most important prerequisite to investment success.” Seth Klarman
"Avoiding permanent loss of capital is the number one rule." Bruce Berkowitz
“The possibility of permanent loss is the risk I worry about, Oaktree worry about and every practical investor I know worries about.” Howard Marks
"We feel the first and foremost responsibility of every investor is preservation of capital." Seth Klarman
“The trick in investing is not to lose money. That’s the most important thing. If you compound your money at 9% a year, you’re better off than investors whose results jump up and down, who have some great years and horrible losses in others. The losses will kill you. They ruin the compounding rate and compounding is the magic of investing.” Jim Rogers
“I think it’s more important to avoid losers than it is to pick winners. I think that if you look at what happens when you lose a great deal of your capital, making it back in terms of compounding is difficult. It’s the oldest story in the world. If you lose 50% on an investment you need to make 100% on the next one in order to get back to breakeven, and that’s a difficult equation basically.” Terry Smith
“My goal was to keep losses down, and if I could catch a few stocks going up, compound returns would work their magic.” Walter Schloss
"Loss avoidance must be the cornerstone of your investment philosophy." Seth Klarman
“As I have stated here before, I view my job here as first and foremost to preserve our partners’ collective purchasing power and then to expand that power at a satisfactory rate.” Li Lu
"Greedy, short-term orientated investors may lose sight of a sound mathematical reason for avoiding loss; the effects of compounding even moderate returns over many years are compelling, if not downright mind boggling." Seth Klarman
“The most important factor in long-term wealth creation is not losing money and continuously compounding.” Dan Davidowitz
"Return of capital is more important than return on capital." Mohnish Pabrai
"Most investors focus on how much they're going to make rather than how much they could lose. Our focus is on the downside." Marc Lasry
"Safety. Considering the downside is the single most important thing an investor must do. This task must be dealt with before any consideration can be made for gains." Irving Kahn
“In our first investor letter over twenty-five years ago we proclaimed that Maverick’s objective was to preserve and grow capital. After a bit of debate, we decided to prioritize ‘preserve’ over ‘grow.’” Lee Ainslie
“Avoid big losses. That’s the way to really make money over the years.” Julian Robertson
“It’s ingrained in my DNA to think about the downside before any upside potential.” Allan Mecham
“If we as investors fixate and overdose on downside protection, the upside, in many cases, takes care of itself. If you can put floors on the downside, then you’ve got a huge advantage. That framework of “heads, I win, tails, I don’t lose much” ― in other words, when things don’t work out, you get all or most of your capital back ― is a huge advantage.” Mohnish Pabrai
“The trick is to avoid losers. Losers are terrible because it takes a success to offset them just to get back to break-even. We strive to preserve capital on each investment. It does not always work out that way, but that is the goal.” David Einhorn
“The definition of a great investor is someone who starts by understanding the downside. You must make the judgement in advance as to how much downside risk you are willing to take.” Sam Zell
“When it comes to compounding, I’m not sure everyone understands that percentage losses and gains are not equal. I’ve always managed to avoid the large losses. Imagine something as simple as that being one of your secret sauces.” Frank Martin
“[A] key building block investment principle is that big losses are not compensated for by big gains, so they should just be avoided at all cost. For example, if I have alternating gains and losses of 50%, I will lose a lot of money, because a 50% loss will require a 100% gain to recover from.” Ray Dalio
“The chance of gains means very little to us until we have attempted to rule out the probability of permanent loss.” Chris Begg
"We believe in the power of compounding and the simple math is that you can't compound very well if you suffer too much on the downside.” Tom Perkins
“Makes sure that the probability of the unacceptable (ie the risk of ruin) is nil.” Ray Dalio
"People love focusing on the upside. That's where the fun is. What amazes me is how superficially they consider the downside. For me, the calculation in making a deal starts with the downside. If I can identify that, then I understand the risk I'm taking. What's the outcome if everything goes wrong? What actions would I take? Can I bear the cost? Can I survive it?" Same Zell
"As Warren Buffett said, "In order to succeed you must first survive." You need to avoid ruin. At all costs." Ed Thorp
“Our job is to survive.” Jim Simons
“It’s our clear belief that one of the most effective ways to compound wealth is to minimize drawdowns.” Charles de Vaulx
“The best way to make money is to not lose money.” Bill Ackman
“Don’t focus on making money, focus on protecting what you have.” Paul Tudor Jones
“I’ll tell you a secret of mine. I don’t like to lose money. I like to make money of course, but I really don’t like to lose it… We have always run the fund to avoid taking a chance for spectacular gains at the risk of spectacular losses - we typically hedge out some of the upside in any investment to avoid much of the downside.” Izzy Englander
“Remember, winning in the investment game means not losing.” Christopher Browne
“A market downturn is the true test of an investment philosophy.” Seth Klarman
“People find insuring their house a necessity, not something to be judged against a financial strategy, but when it comes to their portfolios, because of the ways things are framed in the press, they don’t look at them in the same way.” Nassim Taleb
“When I buy or sell something, I always try to make sure I’m not going to lose any money first. If there is good value, then I’m probably not going to lose much money even if I am wrong.” James Rogers
“I have no appetite for losses.” Michael Platt
“An investor is more likely to do well by achieving consistently good returns with limited downside risk than by achieving volatile and sometimes spectacular gains but with considerable risk of principal. An investor who earns 16% annual returns over a decade, will perhaps surprisingly, end up with more money than an investor who earns 20% a year for nine years and then loses 15% the tenth year.” Seth Klarman
“The power of compounding is so great that our first job as investors is to avoid anything that might short circuit it.” Ira Rothberg
“An investor needs to do very few things right as long as he avoids big mistakes.” Warren Buffett
“In my book, trying to avoid losses is more important than striving for great investment success.” Howard Marks
“Most equity investors are optimists and focus on what can go right, but big drawdowns are the primary enemy of long term compound returns.” Kevin O’Brien
“First off, we operate out of fear of losing. We institutionalise a lot of processes, especially risk management, and the risk function is framed by how much we can lose.” Kyle Bass
"Preservation of capital is key to survival in this business." Christopher Parvese
"Our first priority is always capital preservation, so we are usually playing defence, even if it means we sometimes trail the market when it's ripping upward." Whitney Tilson
“What we care about is avoiding the permanent loss of capital and, increasingly relevant today, the permanent loss of purchasing power.” David Iben
“Our priority is to preserve capital. We seek to invest wisely and carefully, closely adhering to our philosophy. ‘To finish first, first you need to finish’.” IP Capital Partners
“Investing is a probabilistic business. For every commitment of capital we make, we compare our estimation of the likelihood of success with the probability of failure. We then assess how much we can make in a successful outcome with our best estimate of what we can lose in an unsuccessful outcome. We are willing to take more risk in a situation that offers more reward.” Bill Ackman
“The most important rule of trading is to play great defence, not great offense.” Paul Tudor Jones
“Never set yourself up for the knockout punch.” Kyle Bass
“Risk control is invisible in good times but still essential, since good times can so easily turn onto bad times.” Howard Marks
“Thoughtful investors can toil in obscurity, achieving sold gains in good years and losing less than others in the bad. They avoid sharing in the riskiest behaviour because they’re so aware of how much they don’t know and because they have their egos in check. This, in my opinion, is the greatest formula for long term wealth creation – but it doesn’t provide much ego gratification in the short run.” Howard Marks
“I learned that if I can simply survive in the market, just like surviving in the war, and not lose money, eventually I will make something.” Walter Schloss
“One thing I’m sure of is that an absolute prerequisite for success in this business is survival. Some people who invest aggressively at the wrong time don’t survive.” Howard Marks
“I spend most the day watching my losers because if those are being managed correctly the winners take care of themselves.” Steve Cohen
“If you’re not thinking about how much capital you have at risk i.e. the downside, then I think you’re leaving out a very important part of the equation.” Daniel Krueger
“The core tenets defining out trading philosophy – total focus on absolute return, risk control, liquidity and drawdown – will remain constant. These tenets have served us well through the financial convulsions of the past four years.” Andrew Law
“The speculator has to be his own insurance broker, and the only way he can continue in business is to guard his capital account and never permit himself to lose enough to jeopardise his operations at some future date when his market judgement is correct.” Jesse Livermore
“To paraphrase Ben Graham, the dean of fundamental securities analysis, the return of one’s capital is just as important as the return on one’s capital.” Larry Pitkowsky
“What we learned at Drexel underpins our investment philosophy: Protect your downside and don’t lose money.” Jon Sokoloff
“Your first thought must be how to protect your capital and make your trading as safe as possible.” William D Gann
“The notion of understanding the first rule of life is important: don’t lose money.” Mario Gabelli
"We have two principles. The first is : Don't lose money. The second is: Don't forget principle No. 1." Albert Nicholas
“Risk management is the most important thing to be well understood.” Bruce Kovner
“Preserving private capital for long periods of time is the exception, not the rule, in history.” Paul Singer
"We think if we stick to our philosophy and protect people on the downside, we can produce a pretty good record. The past 40 years has proved that." Albert Nicholas
"We truly believe the key to investment success is losing less than the market during declines - losing small is more important than winning big. The math works and it keeps you in the game when you should be." Brian Krawez
"Much of investing is about not losing just as much of life is about not dying. It is avoiding those places where you can die. That's why I'm not a really big fan of parachuting." Bruce Berkowitz
"What I believe in is compounding and not losing money." Colm O'Shea
"I have an intense dislike for losing money." Phil Fisher
"Once we know that our downside is protected, then we look at the upside potential." Marc Lasry
"When I was in my early 30s at Bear Stearns, I’d have drinks after work with a friend of my father’s who was an entrepreneur and owned a bunch of companies. “Never worry about what you might earn on the upside,” he’d say. “Always worry about what you might lose on the downside.” And it was a great lesson for me, because I was young. All I worried about was trying to get a deal done, for my investors and hopefully for myself. But you know, when you’re young, oftentimes you don’t worry about something going wrong. I guess as you get older you worry about that, because you’ve had a lot of things go wrong." Henry Kravis
"Always understand your downside before you focus on your upside." Steve Major
"One of the things I think has really made us good is that we have not just done very well picking stocks, but we've done a great job of avoiding losers." Jamie Dinan
“Consistency is the key. It is close to impossible to get a good, long-term, rate of return if you suffer serious negative numbers en route. It’s the math. A single year that is down 30% means you have to get 30% per year positive returns for the next four years to get back on track for 15% annual average. Or, if you score 20% annually for four years, and then suffer a 30% decline, your five year average return is only 7%.” Ken Fisher
“One of the tricks of this business is, keep your losses down and then, if you have a few good breaks, the compounding works well for you.” Walter Schloss
"When selecting securities, it's important that investors underwrite defensively to help protect capital." Matthew McLennon
"A very important data point for me is to try to avoid permanent loss of capital." Mohnish Pabrai
"Look down, not up, when making your initial investment decision. If you don’t lose money, most of the remaining alternatives are good ones."Joel Greenblatt
"Watch out for the downside. Don't worry about the upside." Jim Tisch
"We believe in focusing on the preservation of capital before considering the return on it." Steven Romick
"I am more concerned with preserving the Fund's capital than its recent profits, so that I tend to become more liberal with self-imposed limits when my investment concepts seem to be working." Geroge Soros
"Since you don't get advance warning about what kind of environment is coming next, you should always be concerned about preserving your money." Seth Klarman
"The most important thing for me is that defence is ten times more important than offence. The wealth you have can be so ephemeral; you have to be very focussed on the downside at all times." Paul Tudor Jones
"Making capital preservation our first order of business is the best way to grow capital over time. To most effectively compound returns you have to mitigate your downside - that's just basic math." Mark Thompson
"We truly believe that preservation of capital comes before all other aspirations. In other words, 'To win, first you must not lose.'" Frank Martin
"In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximise return only if losses would not threaten your survival." Peter Bernstein
"My whole perspective on investing has been, and hopefully will continue to be, not to lose." Craig Effron
"The number one job of the money manager is not to make a lot of money, it's not to beat the market, it's not to be in the top quartile, the number one job is not to lose money, and it's to control risk." Howard Marks
"We prioritize the avoidance of catastrophic loss first and foremost and focus on potential gains second." Zeke Ashton
“Protecting capital is the first and foremost thought in our mind, and then compounding that capital off a higher base.” Dan Davidowitz
“Capital preservation is always far more important than capital enhancement.” Seth Klarman
"I emphasize that our first goal is to control the risks of permanent loss. When we analyse a security, we first look for the attributes that will protect us against incurring a loss that cannot be recovered within a reasonable period of time. We will not commence analysing the positive attributes of a security until we are convinced that the risks of permanent loss in the security are relatively low." Ed Wachenheim
"Howard Marks is a really good thinker. He has always maintained that as an investor, you should focus more intently on the downside than the upside. Be very grudgingly, he says, about risking losing money. I agree. I don't want to lose capital." Barton Biggs
“From our standpoint, the rule of investing we believe most is, the first rule of investing: don’t lose money and the second rule of investing: don’t forget the first rule. There are a lot of people who would say ‘I don’t want to lose money but I’m going to do a mathematical formula which will show if I make ten investments and one is a ten for one, three or four will be zeros but that’s okay’. We said, ‘no’, what we want to do is compound at a reasonable rate and not be greedy. And do it consistently. If you do the math, and think about it in any long term way, the people who do well, are the people who compound over and over again.” Tom Steyer
“Significant drawdowns wreak havoc with long-term compounded returns and, no less importantly, investors are prone to become irrational (a.k.a. panic) at the worst possible time. One of our least talked-about but most important responsibilities as managers is to avoid putting clients in that wealth-threatening position.” Frank Martin
“I believe the most important decision is to not lose money. Some people care about the upside, they don’t worry much about the downside if they think the upside is great. I like to start in reverse, sort of like a doctor. Do no harm. If you lose a lot of money, and you have to have a really great deal next to make it up, you’re better off never losing. Then if you have the same upside somebody else does, then you do much better over time. That was the theory of the case and that’s how we operate still today as 34 years later.” Stephen Schwarzman
“Everybody is always looking at the upside. I think the important thing is you worry about the downside. If you don’t lose any money in any investments or businesses that’s a big benefit. If you make 15% it’s great, if you make 7% it’s not so bad. But if you lose 20% it’s very hard to make that up. When I look at a deal I say ‘ok, I undertsand the upside, what’s the downside, what the worst that can happen within reason’. That’s what I look at.” Stewart Resnick
“I am always thinking about black swans. At the office everyone thinks I’m weird because I’m always thinking about what can go wrong.” Philippe Laffont