process
Favourable Asymmetry
The rule
Real skill is catching more of the market's rise than its fall, not just moving with it. Keep most of the up, and lose less on the way down.
Where it flips
Chasing 'lose less' can make you so defensive that you catch almost none of the rise and slip behind over time. The fix is to protect the downside without giving up most of the gains.
Anyone can go up when the market goes up and down when it goes down; that is just riding the wave, not skill. What truly builds wealth over full cycles is an uneven trade: keeping most of the gains in good years while losing less than others in bad ones. Because a loss hurts far more than a gain helps, protecting the downside is where the real edge lives.
A worked example
Over a cycle Aayra catches 90% of the up moves but only 60% of the down moves, while a friend matches the market both ways. After one full boom-and-bust, Aayra ends clearly ahead, even though she never had the flashiest single year. [illustrative]
How to spot it
- ·Someone brags only about up years
- ·Big gains wiped out by one bad crash
- ·No thought about how much is lost in downturns
Howard Marks · The Most Important Thing