“Drawdown, it might be a very new word for you, but if you are investing in the markets, this is a crucial thing you need to understand.”
Before defining what drawdown is? Let’s look at a scenario.
You are an active investor and invested around 10 lakhs in May 2024, and by October 2024, your portfolio reached a peak of 14 lakhs, which is 40% returns and that’s a good amount of return. But you haven’t sold it.
Slowly things started changing and markets became volatile thereafter, resulting in the shrinking of your portfolio gains.
So, due to severe market correction, portfolio value dropped significantly and as of February 2025, your portfolio is at 17 lakhs. This means you still have an unrealized gain of 17 lakhs which is 17% returns.
But we need to understand something here: from a peak of 40 Lakhs, it reached 17 lakhs.
Which is almost a reduction of about 23 lakhs.
And is this your loss? No, it is not a loss as you haven’t sold, so then what is this? Drawdown. A drawdown refers to the decline in the value of an investment from its peak to its lowest point before recovering. It’s measured as a percentage, showing how much the asset or portfolio has dropped before bouncing back.
If your investment grew to ₹10,00,000 but then fell to ₹8,00,000 before recovering, the drawdown would be 20%.
Trough value is your value before it recovers.
A 20% drawdown means your portfolio saw a temporary dip before recovery.
But when and why do drawdowns happen?
Market-wide crashes are often driven by unforeseen economic or financial crises that trigger widespread panic, leading to sharp declines across asset classes. Some notable examples include:
- 2008 Global Financial Crisis: The collapse of Lehman Brothers and the bursting of the housing bubble led to one of the worst financial crises in history. Stock markets globally plummeted, wiping out trillions in investor wealth.
- 2020 COVID Crash: The sudden outbreak of COVID-19 led to global lockdowns, shutting down economies. Markets tumbled as uncertainty soared, with indices like the Nifty 50 and S&P 500 falling over 30% in a matter of weeks.
- 2022 Tech Stock Rout: A rapid increase in interest rates to combat inflation made high-growth tech stocks unattractive, leading to a sharp selloff in companies that were overvalued during the low-interest era.
And many times, drawdowns happen due to the corrections as well.
Do you know what the difference is between a crash and a correction? Is the current market fall a crash or a correction?
Not just this, sometimes a drawdown occurs at the company level due to internal issues or management decisions. Such drawdowns can be severe and, in some cases, irreversible.
What Happens During a Drawdown?
1. Investor Panic & Emotional Selling
- Many investors sell their holdings at a loss, fearing further declines.
- Cut your losses” mindset kicks in, leading to market overreactions.
2. Smart Money Steps In
- Experienced investors see drawdowns as buying opportunities.
- Warren Buffett’s mantra: “Be fearful when others are greedy and greedy when others are fearful.”
3. Recovery or Further Decline?
- Some assets bounce back stronger (e.g., Nifty 50 after the COVID-19 crash).
- Others may never recover (e.g., Kingfisher Airlines, Yes Bank at its peak trouble phase).
How Savart Handles Drawdowns
At Savart, we understand that drawdowns are part of the investment journey. What matters is how you navigate them. Here’s how our research-driven approach helps minimize risk and maximize recovery:
1. Data-Driven Investment Strategies
- We rely on APART, our proprietary system, which analyzes thousands of data points to make investment decisions.
- This allows us to identify strong, resilient companies that can withstand downturns.
2. Diversification & Risk Management
- We ensure portfolios are well-diversified across industries and asset classes to reduce exposure to single-sector shocks.
- Stop-loss mechanisms help in minimizing extreme losses.
3. Long-Term Perspective
- We don’t react to short-term volatility.
- Our investment philosophy is buying quality businesses for the long haul.
4. Our Drawdown Performance
While no investment approach is immune to market fluctuations, our method has historically helped investors experience lower drawdowns compared to major indices.
“While major indices saw drawdowns of 10-15%, Savart’s approach kept it at just 7.2%—almost half the pain. Our strategy? A mix of data-driven insights, diversification, and long-term vision to protect your money when the market turns red.” Which is much less than the benchmarks and indices.
So, when your drawdown is lesser, it means your portfolio is well-balanced and strong.
Understanding drawdowns is crucial, but how you respond to them defines your success as an investor. With the right strategy, data-driven insights, and a long-term vision, you can turn market downturns into opportunities. At Savart, we don’t just invest—we navigate, adapt, and thrive. Are you ready to invest smarter?