Serious question:
At what point would you abandon an investment strategy, even if you believed its long-term returns were strong?
Would you hold through:
-10%?
-20%?
-35%?
-50%?
And does your answer change if the strategy historically delivered much higher returns than the market?
I’m starting to think drawdown tolerance may matter more than returns, because a strategy only works if you can actually stick with it.
For example:
Would you prefer:
A) 35% annual returns, but occasional -35% drawdowns
B) 12% annual returns, but never worse than -13%
Which would you actually choose with real money?
And more importantly… would you still choose the same after living through the drawdown?
Curious where people draw the line.
What’s the maximum drawdown you could realistically hold through before selling?
byu/Victor-Value ininvesting
Posted by Victor-Value
17 Comments
That’s really the wrong question to ask imo.
Investors ought to assess their risk tolerance and entry/exit criteria before making the investing. Entering an investment position means the investor had some investment thesis – if that thesis changes – whether it’s a gain or loss – that’s when the position should be closed.
This really is no different than an active trader that enters a trade with entry/exit criteria.
When my savings and emergency fund is depleted.
The worse the drawdown, the more like a madman I buy
Shit give me a 100% drawdown I’m gonna keep fuckin buying
Choosing the same annual return as the draw down in your example is absolutely asinine.
100%
Never. I would add more and even margin up if the opportunity became to obvious to miss out on. I do this for great companies during every major drawdown (atleast -10%, high VIX, low RSI, bearish sentiment and attractive valuations in stocks I want to own).
I went 2x in margin on AMD and GOOGL during liberation day as half of my portfolio. Up over 100% since then.
I did margin up recently too at MU below 320$, MRVL below 80$ (amazon capex numbers), UBER below 70$, BN below 40$, MELI below 1700$, NU below 14$, ADBE below 230$ and so on. Up another 50% in the last month alone.
I don´t give a damn about how my portfolio performs in the short-term. It can be -20% in a month and -40% YTD as during liberation day (USD/SEK weakening was a big contributor here). I buy into the fear anyway for long-term gains.
Finally gave up on lcid at -87%
Drawdown wouldn’t matter, more if the causes of the drawdown make me firmly believe the whole system is collapsing.
By which I don’t mean a dot com bubble or a housing crisis collapse, but like a real collapse in the sense financial products and the current legal framework become null and void.
Like a sweeping global regime change ending the notion of private property, or several financial hubs and data centers in Western world getting nuked, or the black plague 2.0 already killed 70% of global population, etc.
Of course a comically large drawdown like 80% probably indicates something like that is ongoing, so that.
if someone is telling you higher returns than the market you are probably already soon to lose all your money anyways
50% no problem been there done that if there good stocks never sell 30yrs in the market hardly sell long plays
My current investment strategy is keep buying.
When the market goes down, I try to buy MORE at the lower cost I try to double down. I’ve been investing since COVID, and it’s worked wonders!
I always hold no matter how far down. I’ve seen some good comebacks as a result.
Been down 80% before being up 2000%
100% because I’m shorting the QQQ and I’m in treasuries and gold right now. I have no faith that this short squeeze really holds and I’m reasonably confident that the US bombs Iran again. Paper oil is something like $35 disconnected from physical and some places it’s closer to $90 gap. I made an absurd amount of money jumping out of the market in January last year and getting back in around April. I’m trying a similar strategy, except I’ll be getting back in around December.
I retired in Nov 2021, and immediately suffered a 40% drawdown. Wild times, lucky i had a significant buffer!
1% of my portfolio. And most of the time I don’t have the patience to wait till then so I cut the loss way before.