The Drawdown Principle

The Drawdown Principle refers to managing and reducing the maximum peak-to-trough decline of an investment or portfolio, especially during market downturns. It emphasizes designing strategies that limit potential losses by understanding worst-case scenarios and incorporating risk controls. By doing so, investors can protect their assets from severe declines and recover more quickly when markets improve, leading to better long-term performance. Essentially, it’s about being mindful of downside risks and proactively minimizing the impact of losses to maintain financial stability and growth.