So a drawdown period is a time from the first high watermark till the next one is achieved. Often times the term high watermark is used.
It is also important to understand the drawdown period for a new drawdown cannot occur till a new portfolio high is made. In other words, it's a peak-to-trough measurement. "ĭrawdown in investing measures the decline of a portfolio from its high point to its low point before the portfolio recovers and makes another new high. The discussion here is based on a highly insightful presentation by mathematician and former quantitative hedge fund manager Robert Frey in 2015 titled " 180 Years of Market Drawdowns. This is important for investors to recognize for the drawdown can exert a substantial psychological toll on individual investors and can push them towards imprudent decisions or give up investing. Stock market investing is about reconciling to the fact that much of the time the portfolio will be in a state of drawdown, or below its high watermark. The ongoing bear market is a good opportunity to once again go over drawdowns and the high frequency with which they occur. A few years ago we published an article on portfolio drawdowns.
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