In Layman terms:
The short down-to-earth economics' explanation is that when the return of investement is 0.65; you didn't just loose the the gains you made in the past years (aka returns or interest), you lost part of the original investment as well!
The down-to-earth math explanation is that you see '0.65' and think "1-0.65 = 35%; ok that's very close to the 30%, 20%, 10% and 22% increments we've seeing, so 35% should be a small loss".
And this is the completely wrong mindset!
To recoupe all of the losses of 0.65 on the next year, you need to calculate 1 / 0.65 = 1.54. A whooping 54%! You need to always think in terms of inverse function.
This is more obvious with a ROI of 0.0: Mr. Hare lost all the money he invested, and to recoup it he would need an infinite return on the next year (1/0 = ∞)!
A common mistake is to think you would need a 100% return on the next year to recover.
An infinite return can be interpreted that if the next year he makes money again, it wasn't because of whatever investment he made. Because theoretically he lost of all of it. It would make no sense to make money if you have no factory, no land, no money to pay salaries, no anything.
I see a very similar problem happens in video game development:
Newcomers compare frames per second (i.e. fps, frames / second) to measure performance, so if a game goes from 220 to 200 fps, they see it as a disaster because losing 20 fps looks like a lot. The problem is that they should be comparing milliseconds per frame (milliseconds / frames), thus they need to invert it. So instead of 220 - 200; they should be doing 1000/200 - 1000/220 = 0.45ms.
That means that if the game would be running at 60 fps, that same performance hit would cause it to drop to 58.41fps = 1000 / (1000/60 + 0.45454545). So we see it wasn't a big deal: A 20 fps loss when running at 220fps is just a 2.59fps loss when running at 60 fps.
So that's why your original example feels counterintuitive to you: You're operating in the wrong space.
You're directly comparing the difference between numbers i.e. Mr Hare did 30% more in the first year, 20% in the second year, and made a 35% loss in the third year; when you should be thinking in terms of their inverse: Mr Hare did 30% more in the first year, so a loss of 23.07% on the next year would negate those results (23.07% = 1 - 1/1.3).
Mr Hare did an accumulated 1.3*1.2 = 1.56x in the first two years. So a loss in the 3rd year of (1 - 1 / 1.56) = 35.89% would negate all that.
Why it takes so little to fall so much apart? I feel there's a life lesson in there: things are hard to build, and easy to destroy.
Or you could see it from the angle that the 35,89% loss is not just taking a chunk of the money you already made, but also of the money you originally invested.
That original 1.56x increase had to be done in two years: the first year from 1.3x with JUST only the original money; and 1.2x with the original money + the returns from the first year. The loss of the 3rd year can take a bite from the returns of all 2 years combined plus the original investment.
If you kick a yenga tower by the middle, you make a lot more ruckus if it's a big tower that took a lot of time to build, than if it's a small one that was made a second ago with just a few pieces.