Risk is a constant and the analysis of drawdowns across the main indices over long timespans provides a tangible representation of this inherent exposure. Stocks do not make new highs every day and so the outcome is the investor is usually in a drawdown state. Source: “The Formula: Maximum drawdown” (2018). P = Peak value before largest drop L = Lowest value before new high established 1 A maximum drawdown (MDD) is the maximum loss of an investment during a specific period and is highly relevant as it is an important indicator of downside risk. It measures the peak-to-trough decline in the value of a portfolio before a new peak is achieved. Investors must accept their stocks will be underwater from portfolio high watermarks most of the time.
