Max Drawdown

[whatsyourgovt]

If i understand this concept correctly, it’s strictly referring to the time period as opposed to any numeric figure, right? In other words, you are looking to see how long it takes to regain the hwm value?

 

[tozerrt]

Not exactly.
Max drawdown measures the largest single drop from peak to bottom in the value of a portfolio (before a new peak is achieved).
For example if a portfolio starts being worth $100,000, increases in value to $150,000, decreases to $90,000, increases to $120,000, then decreases to $80,000, then increases to $200,000, the max drawdown is ($150,000-$80,000)/$150,000 = 46.67%

 

[whatsyourgovt]

^Grazie! Just to be sure, the drawdown period wouldn’t technically end until you exceeded the 150k right? To use your example, instead of the last period increasing to 200k, the portfolio increased to 140k, the drawdown wouldnt be calculated right?

 

[tozerrt]

Not quite.
The drawdown can **always** be calculated – it’s simply (HIGH minus LOW) / HIGH. Keep it simple. If 150k is not exceeded, then we still have the chance to reach a new low.