Big Drawdowns: The Wild Ride To Riches

Every investor daydreams about going back in time and getting in on the ground floor of a super successful company. Amazon went public at $18 and now trades above $3000. That's a whopping return of 17,000%! Being an early investor would've made you filthy rich - if you were able to hold on.

Staying invested is much easier said than done. Hindsight is 20/20. We have the privilege of knowing things worked out for Amazon, but it was a bumpy ride.

While there were many years of amazing returns, there were also tense moments where all seemed lost. To endure these drawdowns you would've needed an iron stomach.

Year	Annual Return
1998	966.39%
1999	42.18%
2000	-79.56%
2001	-30.47%
2002	74.58%
2003	178.56%
2004	-15.83%
2005	6.46%
2006	-16.31%
2007	134.77%
2008	-44.65%
2009	162.32%
2010	33.81%
2011	-3.83%
2012	44.93%
2013	58.96%
2014	-22.18%
2015	117.78%
2016	10.95%
2017	55.96%
2018	28.43%
2019	23.03%

Would you've been able to hold on during the Great Financial Crisis or during the Tech Bubble? I wouldn't have.

A lot of stocks don't come back. Every year companies fail, even industry titans that once were unstoppable. Yahoo, Myspace, Enron, Blockbuster.

It can be incredibly rewarding to ride out the downs, but things can also turn grim. A bounce back might never happen.

How do you know when a drawdown is temporary or when it's permanent? You won't. That risk is part of the deal.

Comments

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event. Be specific. Give clear examples. Vague feedback equals dismissed feedback. Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes.

Today's Special: Humble Pie

You champion a project, fight for an idea, and then...reality sets in. That churning in your stomach isn't butterflies, it's the realization you've missed the mark. Pride will puff up your chest, and kick in the "defend at all costs" instinct. But arguing with the umpire never changed a call. Admitting you're wrong isn't a sign of weakness. It can strengthen your professional standing. In a world obsessed with the illusion of infallibility, the courage to adjust course is a breath of fresh air. It shows you're confident enough to be wrong, and adaptable enough to learn from it. Do your research, think critically, and stand behind your decisions. But when the data whispers (or screams) otherwise, don't be afraid to swallow that slice of humble pie. Be the first to acknowledge. Don't wait for someone to point out your mistake. Be open, take responsibility, and most importantly, focus on what you're going to do to address it. Don't dwell ...

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer. Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong. "You're right!" feels good. We savour the moment, analyzing every detail. "You're wrong!" stings. We want to quickly forget, dismiss, and move on. When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie...

Herman Ye

Search