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Yes but if I invested $1000 and sold 1/2 for ($1000 + any taxes/fees that might apply) some time later, if it crashes to 0 I am not at a net loss.

You can call it a fallacy all you want, it's one I'm more than happy to indulge.

What he is saying is that he is investing only so much that a financial crisis (total loss) doesn't result in a personal crisis (divorce, can't pay rent, etc)

Really, it's only $50,000 if they realize the gains. In gambling what OP is referring to is "free rolling".