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Not sure I am reading this right... but I don't think it answers the question;

It's just for background information. Don't read more into it than that.

As much to answer a question I had as anything else, but since I did it might as well post it. My question was "So...just what magnitude of month-to-month drops have occurred in the past? If I see a loss of X%, should I freak out or just shrug it off as a typical drop?"

In my quotes file is this, I think from Barry Ritholtz: "Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years." This was in the context of "high volatility is not unexpected, be emotionally prepared for it."

The data I just posted confirms this with respect to depth of drops. Yeah, you can expect to see losses of ~20% in any short-ish timeframe - month, 6-months, year. And the god-awful trainwrecks of Black Monday and the Financial Meltdown show up quite visibly.


The interesting part is that it doesn't really get worse the longer it goes. It just kinda stays at a similar level of ugliness. Whether the period is 2 month, 6 months, or 12 months, the 5 worst drawdowns are in the -20% range. Not that anybody *likes* these 20%-30% losses, of course -- it's just the way it goes.

"Until you realize taking a beating is a normal part of long-term investing, you’ll hurt the overall performance of your portfolio.
Staying with your strategy during a pullback is difficult, and it never gets any easier."

Aah, right, it was him, here's another similar thing he said, "As to volatility, we know that a 10% correction comes around every once each 2 years, and that we can count on three corrections of 5% over that same time period. We cannot predict these, and have yet to find anyone else who can. We simply accept this as a part of investing, and compose our portfolios with that in mind We also try to make sure that emotionally, we are prepared for these inevitable hiccups." -- Barry Ritholtz

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No, I don't compute peak-to-valley ("highest high to it's subsequent lowest low"), even though that's the strict definition of drawdown. For one thing, it's virtually impossible to do in a spreadsheet -- unless there is some trick that I just haven't figured out. For me, 12-month drawdown is good enough; it tells you 99% of what you want to know. Also, 52-week high is found in just about every quote engine, so evidently it is considered to be a good timeframe.

And, as a number of people have pointed out (including my wife), the dot-com spike wasn't "real" -- it was mostly just irrational exuberance, and it doesn't seem productive to use that artificial spike as a benchmark to measure against.
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