The stock market goes down by x% and the goes up by the same x%. Does it recover its original value?
No, it only reaches a value of 1-(x/100)^2 of its starting point. The percentage positive increase has to equal x/(1-x/100) for a full recovery. Ratchets have a definite mechanical advantage for pulling investors across the bumpy plateau.
Although, or perhaps because, I don't have a significant fraction invested in the stock market and mutual funds, this property has always spooked me. It always seems that any large percentage drop in value takes a much larger counter-ratchet to recover. In a non-growing, oil-limited economy, it seems to me that this inevitably leads to a downward spiral.
Sorry for the pedantic post, but time off has rendered me to refitting the old training wheels. Tom Friedman has also pulled out his training wheels and begins to make some sense by looking at basic math and realizing that GM hasn't a clue.