I've heard of people complaining that they've seen a lot of paper losses as markets crashed due to COVID-19. Why are current paper losses bad?

Hi anon, it doesn't mean paper losses are bad.

It's just that psychologically, it's painful to accept due to this bias called "loss aversion". This means that our degree of pain when we lose money is much larger than the degree of happiness when we see profits. You can read up more here: https://blog.seedly.sg/rational-investor-ii/

It also doesn't mean that the effort is all gone to waste. It's just that the market is getting manic-depressive, to borrow Benjamin Graham's words, over the short-term.

"You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right – that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else." -- Warren Buffett

I think it's because of the crisis, it reminded them that behind every counter they bought, there's actually a real company behind it.

And likely they had not done enough research into the co. (or did absolutely no research and was simply swept up by hearsay, coffee shop talk etc.) when they bought it.

Also, they may have bought at a high price in good times.

Quoting Howard Marks:

"For a value investor, price has to be the starting point. It has been demonstrated time and time again that no asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough."

Now they wonder if the co. will bankrupt or survive this whole episode. And if the co. survives, will the stock price go back to at least the price that they bought?

Without proper knowledge and research to anchor their belief, it is natural they will panic on paper loss.

If you have done sufficient work on your investments, your effort will not be lost.