Why does a 50% loss need a 100% gain to recover?
Review the loss amount and total exposure before lowering your average cost.
A fall and a recovery use different starting balances
A 50% loss on KRW 1 million leaves KRW 500,000. Recovering the original amount requires gaining KRW 500,000 on the remaining KRW 500,000: a 100% return. The same money represents a larger percentage of the smaller balance.
Example: 20% ÷ 80% = 25%
| Loss from original principal | Gain needed to break even |
|---|---|
| −10% | +11.11% |
| −20% | +25% |
| −30% | +42.86% |
| −50% | +100% |
This excludes fees, taxes and additional cash flows. After a 100% loss leaves a zero balance, price appreciation alone cannot recover the principal in that same holding.
Averaging down can reduce the loss percentage without removing the loss
If 100 shares bought at KRW 70,000 fall to KRW 50,000, the loss is KRW 2 million. Buying 100 more at KRW 50,000 lowers average cost to KRW 60,000, but KRW 12 million invested is still worth KRW 10 million. The loss remains KRW 2 million. A further fall to KRW 40,000 would create a KRW 4 million unrealized loss on 200 shares.
Three numbers to check before buying more
- Current loss amount: check the actual money lost as well as the percentage.
- Total investment after buying: see how much is concentrated in the same asset.
- Loss after another fall: consider affordability and the effect on money needed for living expenses.
Returns and average cost describe your position. They do not determine whether buying more is appropriate. Separately consider whether you can maintain your plan if prices fall further.
What happens if prices fall after you buy more?
Using the earlier example of 200 shares costing KRW 12 million, vary only the current price. Assume no further cash flows, fees or tax. Review the monetary loss as well as the percentage.
| Current price | Market value | Unrealized gain/loss | Return |
|---|---|---|---|
| KRW 50,000 | KRW 10,000,000 | −KRW 2,000,000 | −16.67% |
| KRW 40,000 | KRW 8,000,000 | −KRW 4,000,000 | −33.33% |
| KRW 30,000 | KRW 6,000,000 | −KRW 6,000,000 | −50.00% |
Time to recover and money you can spare are separate
Recovery time is uncertain. Distinguish money needed soon from money that can stay invested. Before adding, review whether the investment thesis has changed and how much of your total wealth is exposed to the same company. A lower price alone does not establish that an asset is undervalued.