Want Gains? Answer: Avoid Larger Losses… A case for diversification and Defensive Portfolio Controls(TM)

Focusing on the red of losses in the chart reveals that the bigger a portfolio’s loss, the bigger the gain needed (vis-a-vis the loss) to make up for the loss. Reciprocally, focusing on the green of gains in the chart reveals that the bigger a portfolio’s gain, the smaller the loss needed (vis-a-vis the gain) to cancel out the gain. This shows that the bad effects of portfolio losses count more mathematically than the good effects of gains. Perhaps this is linked in some way to what psychologists tell us: the pain of loss is felt more deeply–3 or 4 times more–than the pleasure of gain.

Read More: http://www.morningstar.com/articles/863094/why-diversification-pays-in-rising-markets-too.html