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Glossary
Returns & risk

Drawdown

The fall from a peak to the following trough. The pain, measured.

Maximum drawdown is the worst peak-to-trough decline over a period. It is arguably a more honest risk measure than volatility, because it corresponds to what people actually experience and what actually makes them capitulate.

Recovery is asymmetric: a 50% drawdown requires a 100% gain to get back to level. This is why deep drawdowns are so much worse than they sound.

Figure

Volatile is not the same as risky

Volatile, fineCalm, ruined

The jumpy line ends higher. The calm one quietly walks to zero. Volatility is what you feel; risk is what actually takes your money.

Why it matters

It is the number that determines whether you stick with a strategy or abandon it at the bottom.

The mistake everyone makes

Choosing a strategy on returns without ever asking what its worst drawdown was.

Related terms

Volatility
How much a price swings about. Not the same thing as risk.
Leverage
Using borrowed money to increase the size of your position.

See Drawdown on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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