[The Editors' Verdict] How to Recover from an 80% Investment Loss

[Asia Economy Reporter Jeon Pil-su] There was a young man who became a millionaire in his 30s through stock investment. He invested not only his own money but also funds from acquaintances, earning returns of several tens of percent annually. His seemingly unstoppable investment life came to a sudden halt after experiencing a market crash. Nearly 80% of his investment assets disappeared.

The name of this young man, who must have felt like going to the Han River in frustration, is Benjamin Graham, known as the father of modern securities analysis. In 1926, Graham gathered his own and his acquaintances' money to form the Graham Consortium. Until the Great Depression broke out in 1929, the Graham Consortium's average annual return was as high as 25.7%. How did Graham, praised as a genius investor but then plunged into ruin, feel? He was probably not much different from today's young people who are devastated after investing in skyrocketing stocks and cryptocurrencies.

Since the beginning of this year, the number of young people making counseling calls from Han River bridges has increased. According to Korea Life Line, among those who made counseling calls from Han River bridges through the 'SOS Life Line' in the first half of this year, the proportion of people in their 20s and 30s exceeded half of the total. Last year, out of a total of 466 crisis counseling cases, consultations from people in their 20s and 30s were 146 (31.4%) and 51 (11%), respectively. In the first half of this year, the number of consultations from people in their 20s and 30s increased to 79 (36%) and 32 (14.6%), respectively. Economic reasons for considering extreme choices also increased, rising from 8.8% last year to 10.5%. Experts diagnose this as a result of the recent market crashes in stocks and cryptocurrencies.

Usually, people who suffer large losses from investments try to recover by aiming for even greater profits. They might look into theme stocks or explore futures and options that can maximize leverage effects. In fact, leveraged ETFs, which allow betting two to three times the principal, are currently the most sold indirect products. Since recovering from an -80% loss requires a 400% gain, investors become anxious.

However, Graham chose a different path. Assuming that even his proper value analysis could be wrong, he focused on the concept of a 'margin of safety.' The concept of margin of safety originated from bonds, where the margin of safety increases as a company's earnings exceed bond interest. Graham applied this to stocks, considering companies with large net cash assets and low stock prices as having a high margin of safety. Based on this, he concentrated on managing his portfolio more stably, which improved his returns. Although it seemed like slow progress, it took only three years to recover the assets that had lost 80%, and he continued to thrive afterward, establishing himself as a legendary investor.

Young people who enjoyed nearly two years of a major bull market inevitably find this year's downturn confusing. Even Samsung Electronics, which seemed like an invincible stock, has fallen nearly 40% from its peak, and those with little investment experience have almost no chance to endure in such a market. Even the National Pension Service, considered the best expert group in Korea, suffered nearly a 20% loss in domestic stock investments in the first half of this year.

Neither genius investors like Graham nor top expert groups like the National Pension Service can overcome market declines. However, unlike the majority who give up, they learn lessons from failure. They do not take reckless risks to recover the principal. "There is no stock in the world that guarantees a certain profit. Only serious analysis of failure is the only way to become a successful investor." (Andr? Kostolany)

This content was produced with the assistance of AI translation services.