Losing money is worse than not losing money. That’s obvious. But behind this truth lies some math that’s worth sketching out. It makes clear why value investors act conservatively.

Picture a portfolio that realizes a 50 percent loss in a year. Not one that started the year with stock that just happens to have halved in price 12 months later. One that actually realized a 50 percent loss. One that began on January 1 with cash, bought stock during the year, sold that stock later in the year, and on December 31 had half as much cash as it started with. What would it take for the portfolio to get a fresh start?

It would need a 100 percent return the next year just to get back to zero. That’s hard. Recall that with my Anheuser-Busch ...

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