If you're going to manage your own investments, it is crucial to ensure that no one disaster results in utterly catastrophic losses. The goal is to protect yourself -- not only from outright frauds such as Enron, WorldCom, and Global Crossing -- but from the legitimate firms whose shares got shellacked.
Think about the plummet we saw in Amazon (AMZN), Yahoo (YHOO - Get Report), EMC (EMC - Get Report) and Sun Microsystems (SUNW) after the tech bubble burst; the full list is way too long to detail here.
In my opinion, managing risk and limiting losses are the most consequential -- and underappreciated -- aspect of investing. Loss limitation has a much greater impact on portfolio performance than either stock selection or market timing. How you manage the risk in your holdings will have a more profound bearing on financial success than your stock selection.
It's a shame the subject is not "sexy" enough to warrant greater attention in the financial media.