A recent chat thread about “Why has the turtle trend-following system stop working?” [not accurate headline]:
Forum guest: The drawdowns are horrendous for long term trend following systems. Don’t go near them!
Covel: Chris Clarke has good insight on this podcast ep. for those that scream “drawdown” when discussing trend following.
Also, drawdown goes far beyond trend following. Consider an excerpt from PragCap:
Another way to illustrate this is if you look at something like Berkshire Hathaway. BRK has gone down 50% three times in the past (or maybe more). Once in the early 1970′s, once in 1999 and then again during the recent crisis. Of all the investors who owned BRK in 1970, how many have done better than the 20% or so return of the stock over the years by getting in and out of it in order to avoid the 50% drawdowns?
Big returns over time come with big drawdowns. Buffett has also said himself:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”
No wisdom there (heavy sarcasm).