Wobble Profile picture
6 Apr, 7 tweets, 2 min read
One of the best investing talks I've seen in a while: math genius and former managing director of Renaissance @financequant talking about analyzing 180 years of drawdowns in financial markets. h/t @PeterLBrandt

Favorite points & personal takeaways below

1⃣ Investors in financial markets are in a state of draw down (below high watermark) ~80% of the time, and are in a state of severe drawdown (20%+ below high watermark) almost half the time. This is true even for wildly successful, consistently uptrending investments like S&P500
As Dr. Frey notes, this is a significant stressor for investors: you must prepare to be in a perpetual "state of regret." I also think it's a helpful reminder that you shouldn't get attached to high watermarks or think you're doing something wrong just because (well) below yours.
2⃣ Drawdown characteristics are consistent across time and markets. Interestingly, there is no noticeable difference in the characteristics of drawdowns between different time periods or markets, despite changes in the markets like the advent of central banks and HFT.
This suggests that the history of drawdowns is an expression of human nature & not peculiar to markets or market structures. I think a corollary of this is that it's unwise to assume that some structural change in markets (fed policy, WSB, etc) will change drawdown nature going⏩
3⃣Dr. Frey shares that the Great Depression was not an outlier drawdown, and that would be the case even if he removed it from his observations. Drawdowns like the Great Depression may be rare and happen only once every 1-2 lifetimes, but as Dr. Frey commented, if he hears
someone remark again that we'll never have another Great-Depression-level drawdown, he'll have to shoot them. Just reinforces my takeaway from point (2), and a reminder to heed history and stay vigilant.

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5 Mar
With everyone contemplating risk right now, I thought I’d share a risk management point from Aaron Brown, risk management authority and former risk manager of AQR (a quant firm with 200B AUM), that I find helpful for cutting through a lot of noise: while there are infinitely many
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