He lost for his refusal to go to the body. Clinching would of helped but not as much as going to the body.
As mentioned before, Cotto was supposed to get to his body. All this "Margarito is a defensive master" when it comes to body shots was pure bull**** that Shane recently exposed. Cotto got too cocky and thought Margarito will eventually drop from his power, which didn't happen and not even close. Even though the punches weren't hurting Margarito at all, the reason he was doing very good is because he could see that Cotto can't handle what he has to deliver and that kept him coming and coming. Against Mosley you can tell that as early as the first Margarito was really stunned from the power and was backed off early in the fight.
Cotto said it himself why he didnt go to the body. He had an open target at Margaritos head which is why he kept attacking upstairs. Cotto did everything right in that fight. He just fought a fighter that was hungrier than he was at the time.
Watch the Mosley/Marg fight again. Did you see the first round when Mosley went to the body? Margarito felt it already. He was never able to pick up steam. I believe Nasim Richardson said that they wanted to attack the body so when it hit the 7th round and Margarito wanted to bring up the pace he would not have energy to do so. Its clear that Cotto had the wrong strategy. He never clinched and he never went to the body. He went headhunting because it was wide open. He backed up straight back instead of circling. I think you need to rewatch the fight again.
This is how I see it too EZE. Cotto lost because he let Margo be Margo all night long. Cotto would win the exchanges and walk off. He was more in love with his performance than with putting Margo away. He made the fatal mistake in letting Margo come back at the end of the fight. However knowing what I know now about the wraps there is probably that other side where Cotto didn't feel the power until the late rounds where he was probably like "WTF is this guy hitting me with!"