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Worst Draw-Down
Old 02-10-2005, 02:29 PM   #1
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Worst Draw-Down

What was your worst peak to trough draw-down? Mine was Oct 1987. I was already mostly retired and living on my portfolio. Since I was bearish, I had sold equities down to about 50%. Even so, in the crash my equities went down about 40%, and since I was 50% equity and the rest was mostly cash, my overall drawdown was about 20%. Of course it was much worse than this at various points during the day.

It felt pretty bad, maybe because it was so sudden. Although I had been investing for some years, most of my investing was started near the bottom in 1974, so I hadn't yet experienced bad results. Even though I was retired, I was plenty young enough to have gone back to work full time if I felt I should. I think that fact lessened my stress somewhat.

I would not like to lose that much now. Partly becuase it would be an absolutely greater sum, and partly because it would be much harder for me to create good earnings elsewhere.

I think it is very important to not lose much money when you are retired. Especially with today's valuations ( I know, some don't believe in that ) I would be afraid that low prices could outlast me.

I would be interested in hearing what drawdowns others have endured, and whether you were in withdrawal or accumiulation at the time it happened.

I remember reading something that Martin Whitman said that stuck with me-"The financial position of the investor is at least as important as the financial position of the issuer." If you don't have a job, even if you have $2mm invested, your financial position is constrained by the fact that you don't have inflow to take advantage of low prices, and the fact that you are likely easier to scare.

How would you feel about it now? What sort of drawdown do you feel that you and your mate if you have one could handle without undue distress?

Mikey
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Re: Worst Draw-Down
Old 02-10-2005, 03:59 PM   #2
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Re: Worst Draw-Down

Quote:
What was your worst peak to trough draw-down? Mine was Oct 1987. I was already mostly retired and living on my portfolio. Since I was bearish, I had sold equities down to about 50%. *Even so, in the crash my equities went down about 40%, and since I was 50% equity and the rest was mostly cash, my overall drawdown was about 20%. Of course it was much worse than this at various points during the day.

It felt pretty bad, maybe because it was so sudden. Although I had been investing for some years, most of my investing was started near the bottom in 1974, so I hadn't yet experienced *bad results. Even though I was retired, I was plenty young enough to have gone back to work full time if I felt I should. I think that fact lessened my stress somewhat.

I would not like to lose that much now. Partly becuase it would be an absolutely greater sum, and partly because it would be much harder for me to create good earnings elsewhere.

I think it is very important to not lose much money when you are retired. Especially with today's valuations ( I know, some don't believe in that ) I would be afraid that low prices could outlast me.

I would be interested in hearing what drawdowns others have endured, and whether you were in withdrawal or accumiulation at the time it happened.

I remember reading something that Martin Whitman said that stuck with me-"The financial position of the investor is at least as important as the financial position of the issuer." If you don't have a job, even if you have $2mm invested, your financial position is constrained by the fact that you don't have inflow to take advantage of low prices, and the fact that you are likely easier to scare.

How would you feel about it now? What sort of drawdown do you feel that you and your mate if you have one could handle without undue distress?

Mikey
Mikey: Good question, but my guess is that it is also somewhat age related, on how each individual is able to handle it.
2000,2001,2002 was a good wake up call for me. I was close to 80% equities going into 2000. I didn't change positions until I got back to even. (Somewhere the middle part of 2004).
As soon as I got back to even, I changed my equities to
30%.
My feeling on the subject is that I have no idea what's going to happen to investments in the future, but have a pretty good handle on what it takes my wife and I to live the way we want, and decided for us, the way to go is take mostly short positions on the conservative side, and let the equities run.
At my age, I would have a very short fuse with myself if
we ran into a real "bear" of a mkt.
As far as our draw-down, I changed to new mix to avoid being put in a postion to have to worry about adjusting that. (Also, much easier to plan when you're my age )
Beings that my wife has never had a job outside the home since we've been married, and I would never go to work for an outfit that would have me as an employee, working our way out of a bad situation is not a very viable option
Good question though, especially for the younger posters.
Take Care, Jarhead
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Re: Worst Draw-Down
Old 02-10-2005, 04:17 PM   #3
 
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Re: Worst Draw-Down

Hi Mikey! Jarhead's story is quite interesting, but
"undue distress" is different for everyone. I hold no
equities mainly because I want nearly 100%
certainty on my income. OTOH, I know we could still
cut back a lot if the worst happened. I have worked out
most of the "doomsday" scenarios in my head, but I never pretend that ALL possibilities are covered.
So far, no major hits to my (financial) plans since I completely
retired. I would be foolish to expect that to last
forever though.

JG
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Re: Worst Draw-Down
Old 02-10-2005, 07:49 PM   #4
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Re: Worst Draw-Down

In re-reading my post I think I may not have been clear as to what I meant by drawdown. What I mean is a downward re-valuation in the market value of invested assets, due to adverse market moves and not consumption. In my usage, its a drawdown whether you sell or just sit with a paper loss.

Mikey
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Re: Worst Draw-Down
Old 02-11-2005, 12:05 AM   #5
 
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Re: Worst Draw-Down

HI Mikey. No stocks. Never met a "drawdown".

JG
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Re: Worst Draw-Down
Old 02-11-2005, 04:45 AM   #6
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Re: Worst Draw-Down

My worst was in my 401(k) in 2000 or there abouts. At that time my 401(k) was "professionally managed" by a stock broker. I lost a lot of money and learned not to trust managers. I had Enron. I had Asia Global Crossing. In 1987 I didn't have enough to matter.

At the same time, DH was managing his own accounts and made it through that time period mostly unscathed. This is one reason I am loathe to criticize his investment moves.
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Re: Worst Draw-Down
Old 02-11-2005, 05:08 AM   #7
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Re: Worst Draw-Down

Hmmmm

My lead sled dog ( a little Bill Fleckenstein humor) was down - 16+% at one point during the last 2000-03 dip.
That was Vanguard Lifestrategy moderate at 75% of total portfolio.

Since I have pre estimated a -22% dip in a downturn - I was ecstatically happy that the computors at Vanguard were auto rebalancing their little hearts out.

Now in my old age - after 11 going on 12 years of ER, thinking of adding the twist of switching to Target Retirement which slides asset mix as the clock ticks on.

I still watch the short end of the stick - yield. Although I'm not immune from an emotional twinge with severe fluctuations at the long end. My basic move is to stand there and do nothing.
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Re: Worst Draw-Down
Old 02-11-2005, 06:00 AM   #8
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Re: Worst Draw-Down

I remember March 2000. I had a spreadsheet of equities and realized I had never had so much money in my life. But, I did not move anything. Down it went, but now it's as good as ever.
The only change I made was when I retired (Jan2004) three months later I moved most of the equities into Vanguard Index funds. Gawd, how I wish I had those funds while I was still contributing and the corp was matching.

Nevertheless, I am making money now, contributing nothing, just reinvesting divs.

I believe I am a couple of years behind Ex-Jarhead, agewise, so I prefer to stay mostly conservative. Also, with 2 pensions, and Tricare Insurance, I don't have to worry. I also agree with unclemick2. Best approach for me is to sit pat, as I did during the big dip. But, during the big dip I was working, now I'm not. Hmmmm!
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Re: Worst Draw-Down
Old 02-11-2005, 06:22 AM   #9
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Re: Worst Draw-Down

Oops, I almost forgot.

I fully subscribe to Vanguard Diehards philosophy.

Keep it simple.
Costs matter.
Stay the Course.

My estimate. If I go down, most everybody else will, too.
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Re: Worst Draw-Down
Old 02-11-2005, 07:57 AM   #10
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Re: Worst Draw-Down

My biggest losses came in the early 90's when
I was invested in individual stocks trying to beat
the market. I was completely in mutual funds
with a 50/50 stock/bond ratio during the last
market crash and hardly felt the ripple.

Cheers,

Charlie
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Re: Worst Draw-Down
Old 02-11-2005, 08:26 AM   #11
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Re: Worst Draw-Down

I will keep my equity position no higher than 29%.
Right now I'm at about 27 or 28%. That's enough risk for me.
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Re: Worst Draw-Down
Old 02-11-2005, 09:21 AM   #12
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Re: Worst Draw-Down

My high tech traditional IRA lost close to 50% when the big balloon popped. Still have not caught up in the traditional IRA, luckly I have a non tech roth IRA and 401K also. Now I'm in mostly index funds and bond funds. My 401 is with Fidelity and I will move it to my Vanguard IRA this spring. I now have a loose coffeehouse portfolio and a expensive education......Shredder
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