Why do losses hurt more than math suggests?
Volatility averages the scatter. But holders don't experience averages — they experience the fall from the top. Meet the risk number that matches how pain actually works.
Drawdown: the fall from the peak
Maximum drawdown is the deepest peak-to-trough drop an asset visited: bought the top, sold the bottom — the worst possible seat. A long chart of any great company shows both truths at once: impressive destination, brutal stretches along the way.
Even legendary long-run compounders have handed holders drawdowns beyond −70% in crashes past — decades-long triumph, punctuated by stretches that felt like the end. Both facts are the same history.
The cruel arithmetic of recovery
Losses and recoveries are NOT symmetric — the percentage base shifts (last unit's lesson, now with teeth):
- Down 10% → need +11% back to even.
- Down 25% → need +33%.
- Down 50% → need +100% — a double, just to break even.
- Down 80% → need +400%.
The hole deepens faster than the ladder grows. This asymmetry is why avoiding catastrophic single-position losses matters more than catching every rally — and it's the mathematical spine under next unit's diversification argument.
Depth AND duration
A drawdown has two dimensions: how deep, and how long until the old peak again — historically anywhere from months to many years for broad markets after major crashes. That second dimension is why Unit 3's very first lesson made time horizon the master variable: deep-and-long is survivable for money that can wait, ruinous for money that can't.
Three real durations, price only, dividends left out: the S&P 500 topped in March 2000 and did not see that level again until 2007, seven years; it topped in October 2007 and got back in March 2013, five and a half. Japan's Nikkei 225 set its high in December 1989 and finally passed it in February 2024 — thirty-four years, a whole working life inside one drawdown. The large developed markets have so far come back from every major fall, sometimes after decades — a record, not a law: shareholders in Russia in 1917 and China in 1949 lost everything, and a market that closes or a currency that collapses turns a drawdown into the permanent kind. And even where recovery comes, the calendar it comes on is not one you get to negotiate with.
Try it now
- Compute the recovery required: −20%? −60%? (Formula: loss ÷ (1 − loss).)
- Open a MAX chart — Apple's is below; for your own anchor company, open it in the Terminal and change the symbol there — and eyeball its worst drawdown, then Measure it: depth, and how long back to the peak.
Open AAPL.US in the EODHD Terminal
- One sentence: why is −50% not "twice as bad" as −25% but considerably worse?