Many of us have been before

[dackerman21]

This might be off-topic, so feel free to delete.

I do think that in times off tremendous capital drawdowns, we should all help each other stay calm and look at past drawdowns. Although this is NOT discussing individual high growth companies, it is still crucial for newer member of the boards to understand certain things.

If you read Saul’s “knowledgeable” it is very easy to find that in the year 2008 Saul was down 62.5%. Also, I do remember in a separate post that Saul mentioned that he was actually down 71% at some point during 2008. I could be wrong on the 71% part. But either way, a drawdown of 62.5% for the year or a drawdown of 71% at some point during the year is still a very large drawdown and is what occurred to Saul in 2008.

Now, let’s look at Saul today based on the information he has provided us.

From Nov 9th, 2021 to Dec 31st, 2021 = Saul said his portfolio was down 28% from highs

On Feb 28th, 2022 = Saul posted that his portfolio was down another 24% for Jan & Feb

From Feb 28th, 2002 to March 14, 2022 = I calculated, roughly, that his portfolio fell about another 25% (This is a guess, as I don’t know exactly what he has done in the last 14 days and my math may be a off)

So, here is a “ballpark” calculation of Saul’s portfolio drawdown as of today

Nov 9th = 100%
Dec 31st = 72%
Feb 28th = 55%
March 14th = 41% (down about 59%)

So, in terms of an historical drawdown for Saul’s portfolio, this current drop of about 59%, is still less than the drop he went through in 2008 of 62.5% (Or, if you want, you can use 71%)

What lessons should be learned:
1)There is only 1 lesson to be learned. Do NOT use margin in your portfolio. Saul makes this very clear, and although he does use very little margin at certain points, he makes it very clear that margin can wipe you out. Also, Warren Buffett has said repeatedly that one should never use margin in a stock portfolio.

Saul has been down here before. I have been down here before in 2008 also. It sucks. It is not fun. It is scary. But, this is part of the game and part of the process. Use the past to remind oneself that these large drawdowns do happen.

Dave

[BenSolar]

If you read Saul’s “knowledgeable” it is very easy to find that in the year 2008 Saul was down 62.5%. Also, I do remember in a separate post that Saul mentioned that he was actually down 71% at some point during 2008.

I wonder what Saul’s peak to trough losses were during that bear market? Looking at QQQ, it’s peak was in Oct. 2007 and it dropped 15% before 2008 even started. QQQ was less volatile than Saul’s portfolio of the time, so it wouldn’t be surprising if his losses from the peak through the end of 2007 were 20-25% and his peak to trough losses in the ballpark of 85%.

Not a lot of people can take that kind of pain and carry on investing in the same stocks that caused such pain.

For an extreme example of just how much a well executing hyper-growth stock can drop from bubble peak to trough, look at Amazon 1999-2001. Peak Dec. 1999 was $113/share to trough Sept. 2001 $5.51 per share for a 95% drop in share price even while the company was growing earnings robustly for much of that time. Of course the stock’s performance since then has been legendary, peaking at $3,773 in Aug. 2021 for a 685 bagger from its nadir.

For a look at how the company was executing during the extreme bear, the Oct 2000 quarterly earnings press release, almost a year into the decline, reported that revenues grew 79% year over year! The next October, in the heart of the 2021 recession, sales were flat year over year, though they reported they expected pro forma profitability the following year. Not bad results for the middle of a serious recession, but the growth story did briefly pause.

Saul’s long term record is incredible, no doubt, but people should be aware of what the more extreme drawdowns can look like, and 60-70% could potentially still be far from the bottom. After Amazon dropped 65% from it’s peak to ~$40 per share, it dropped another 86% from there to $5.50. Of course Saul would have never rode Amazon all the way down to $5.50, he probably would have exited in late 2020 or early 2021 when it was apparent the growth was drying up, but that still would have been a brutal drop 70-85%, depending on exact exit time.

[dackerman21]

That is an excellent point BenSolar. We do not know how Saul’s portfolio performed in the last 2-3 months of 2007. Your guess of a total drawdown from absolute high (probably Oct/2007) to absolute low (probably toward the end 2008) of about 85% might actually be pretty accurate.

Saul, you might deem this off-topic, but do you know how much your portfolio was down in the last 2-3 months of 2007??? Or, do you know how much your portfolio was down from absolute high to absolute low in 2007/2008?

Again, in these unique times, I do think a little discussion on portfolio/portfolio management/% drawdowns might be slightly worthwhile for the newcomers who have never seen this before.

[JC1997]

I got killed in 2008 like everyone else. Probably worse than someone who was in defensive stocks. It was my first negative year after 19 positive years in a row. I stayed 100% in stocks, selling anything which hadn’t gone down much to buy more of the ones that were down the most.

Finally, I was down so much that even I got scared and started to think of selling out and going into cash. All the talking heads were saying, “Sell! Sell! Sell! Get out! Get 100% in cash!”

I said to my wife, “If everyone is shouting ‘Sell!’ and even I am scared enough to be thinking about selling, there’s no one else left to sell… This must be the bottom.” And it was (Nov 2008).

In 2008, in the big meltdown, I dropped 62.5%, which was pretty terrifying. In 2009 I was up 110.7%. The way percentages work though, after dropping 62.5%, gaining even 110.7% doesn’t get you back to where you started, but I sure felt better.

https://discussion.fool.com/knowledgebase-2019-part-1-34381924.a…

[Robworldwide]

While “many of us” may have been here before in terms of % drawdown, the reasons are different this time.

Inflation, very little mechanism to combat it without sending into recession, the end of QE, and major global political events including a pandemic and military conflict are unprecedented forces (at least as a confluence).

Learning risk management including appropriate stops and hedges is an absolute must should some of us ever recover. My planned retirement for June 2022 is put off indefinitely (perhaps a decade to recover?) and if I ever do get close again, I absolutely will respect valuation and instead of parroting the group think “you need to be ready to withstand 30-50% drawdowns!” I’ll be as ruthless with risk management discipline as I am chasing the best of the best in growth.

[stocknovice]

While “many of us” may have been here before in terms of % drawdown, the reasons are different this time.

Respectfully, no they aren’t.

Inflation, very little mechanism to combat it without sending into recession, the end of QE, and major global political events including a pandemic and military conflict are unprecedented forces (at least as a confluence).

Again, the market has previously encountered some version of every single one of the reasons you list. And it will experience them again. Any variations in “confluence” is why history tends to rhyme rather than exactly repeat. There are outstanding businesses in today’s market that will one day look like excellent and obvious buys in hindsight. Same as there ever was. Do I know which ones? Nope. But for better or worse, I’m OK with the ones I’ve chosen thus far. Everyone else needs to make their own decision as to whether they feel the same.

Learning risk management including appropriate stops and hedges is an absolute must should some of us ever recover.

These smart-sounding terms for market timing always appeal during pullbacks like this. Sometimes they work and sometimes they don’t. And we always forget we’ll be just as uncomfortable with the psychological pitfalls of FOMO on the way up as we are with the the loss aversion pitfalls we are feeling today.

Frankly, it sucks we keep veering so wildly off topic, but I understand the reasons why. My portfolio is getting hammered just like everyone else’s. For most of us this market has long-since passed beyond stock picking and risk management into a serious gut check on conviction and temperament. The problem is stock picking is the only one of those that’s on-topic around here. And we’ll all be better off if we ever find our way back to that. In the meantime, our inability to do so gives me faint hope we are closer to a bottom than the top.

[Robworldwide]

Hi Stocknovice,

When was the last time there was a pandemic?

When was there a risk of global conflict like today?

Can you point me to the other time in history where quantitative easing was used as such a blunt tool to intervene in the economy?

Do you know of another time when inflation was rising this quickly with very little scope for the Fed to intervene without plunging us into recession?

I know it’s a favorite pastime to deride those who say “it’s different this time” because so many contrarians shouted exactly that as the market climbed higher and higher. I get it - I shouted them down too!

[NajdorfSicilian]

Again, the market has previously encountered some version of every single one of the reasons you list.

Correct, and the last time we had very richly valued, money-losing software companies reckoning with a change to higher inflation and Fed Policy was 2000, where such names proceeded to get crushed for the next 2.5 years.

Some never recovered.

Some got bought out at what turned out to be even-lower valuations and then you could do longer participate in the possible upside of those names, only whatever conglomerate got them. If Oracle buys one of your names down 80% you will have locked in that loss through no decision of your own. Painful.

Any variations in “confluence” is why history tends to rhyme rather than exactly repeat.

Agreed. I certainly hope it won’t be a 30-month drop this time. Nothing repeats exactly.

Learning risk management...

These smart-sounding terms for market timing always appeal during pullbacks like this.

Risk management is necessary for any portfolio, and has absolutely nothing to do with market-timing.

Deciding [late] to practice that is not market timing either, just finally doing what one should have been doing all along.

There are better and worse ways to do risk mgmt, but diversification is still the only free lunch the market offers us.
The best companies will survive and thrive in the long-run, but nobody’s portfolio only holds the ‘best winners.’

Best,
Naj

Long ADBE, MSFT, GOOG, S, SHOP, AMZN, MA, et al.

Short XPEV, NIO. Just the two.

[Tamhas]

There are outstanding businesses in today’s market that will one day look like excellent and obvious buys in hindsight.

And vice versa. I was down about 2/3, hung in, and back recovered in a little more than a year. A friend had the misfortune to go into 2008 holding a big chunk of Bank of America. Took him something like 8 years to fully recover. Worst of all, he only had it because he had inherited it from his father. When he first got it, I suggested selling it and buying something else since neither of us knew anything about banks, but it was doing OK at the time, so he left it.

[stocknovice]

When was the last time there was a pandemic?

https://www.cdc.gov/flu/pandemic-resources/1918-commemoratio…

I’m pretty sure the market is up since then.

When was there a risk of global conflict like today?

https://www.history.com/topics/world-war-i/world-war-i-histo…

https://www.history.com/topics/world-war-ii/world-war-ii-his…

I have no history with the first one, but my grandparents used to talk about the second. Again, I’m pretty sure the market is up since then.

Can you point me to the other time in history where quantitative easing was used as such a blunt tool to intervene in the economy?

I have to admit you got me on that one, and I don’t feel like searching. On the other hand, can you point to the other time in history where quantitative easing caused the market to collapse and never recover?

Do you know of another time when inflation was rising this quickly with very little scope for the Fed to intervene without plunging us into recession?

First of all, no one has said we will never see another recession. But playing along can you point to any other period of rampant inflation or an economic recession from which the market failed to recover? Sure, it might have taken a while but everyone here has a long-term mindset right?

I know it’s a favorite pastime to deride those who say “it’s different this time” because so many contrarians shouted exactly that as the market climbed higher and higher. I get it - I shouted them down too!

I’m not deriding anyone. And I’d like to think I rarely if ever shout. All I know is every once in a while all those Buffet and Munger quotes everyone likes to point to become the market’s reality. This is one of those moments…just like all those others to which Warren and Charlie keep referring.

We could obviously go around and around like this all day. That’s why off-topic threads are so detrimental to the discussion here. There is no right answer no matter how badly we’d like one. It only leads to the inarguable and unknowable. It also opens the door for anyone and everyone to scratch their off-topic macro, hedging, margin, leverage, portfolio management, valuation, trolling and/or fear mongering itch. Sheesh, we even have Saul reposting results he’s freely made available for months and years on end for anyone willing to pay even the slightest bit of attention. That’s ridiculous. To that end, maybe this Buffet-ism applies to more here than would like to admit it:

“You shouldn’t own common stocks if a 50% decrease in their value in a short period of time would cause you acute distress.”

If that quote ticks anyone off, ask yourself why. It’s simply a repeated string of words not directed at anyone in particular. This style isn’t for everyone, and this board teaches a lot of lessons. One of them is not having an issue with the scenario quoted above. If you do, that might be a lesson in and of itself (a tough one, but a lesson nonetheless).

• When we drift this far off-topic, we inevitably spin off into being exactly the type of cluttered, noisy forum we’ve avoided being for so long. Unfortunately, right now we can’t seem to help ourselves. That’s a downright shame. And shame on me for dragging it out. Our younger and newer readers deserve better.

[Citibeach44]

I have a possible solution to the off topic posts for some people.

So last year I was emailing with another investor, one that reads this board. We wanted to start our own private place to discuss anything we wanted to around investing, life, whatever we felt we wanted to talk about. Like sitting in a coffee shop in the morning, talking amongst friends. There were two of us, then a third came to mind. One of the two to my surprise within a week had a site built on Wix.com, to the specs pretty much we discussed. We call if the Coffee Shop. He did a really great job on it, we have about 8 or 10 people contributing now. It’s a good place to share, to check in, to discuss stocks, the war in Ukraine, favorite rock bands, etc. There are a lot of posts that we would never clutter up Sauls board with.

I’m not promoting our board at all, quite the contrary. I’m suggesting that if you have one or two others that are readers of this board, get together and start your own site on another service like we have on Wix.
That way you have the best of both worlds. You have a private place to share and vent and discuss, and then you have a place like this board, which I still find the best resource for discovering dynamic growth companies and reading the great analysis that’s offered here. All my other stuff I can comment on at the other site and not disturb the flow this board. It’s take a bit of effort to set one up, but trust me it’s a great experience if you keep it to likeminded people and keep it to a pretty small group. The key being small and private.

TMB

[Robworldwide]

Sigh. Yes of course there are historical individual examples, I was referring to their simultaneous occurrence. As you point out, the market is indeed up from each of those incidents (and I’m sure it will be again as long as we aren’t destroyed by a nuclear catastrophe).

The broader point is that combined effects of these forces are why IT IS DIFFERENT this time, and exhortations that “it is never different” + a stubborn disregard for considering valuation + no risk management strategy is literally the tripod underpinning losses in the 60% range (and maybe more to come?).

Full disclosure: I did not properly hedge or unemotionally institute a risk management strategy with stops either; I’m not saying “ha, I told you so” I’m pointing out what I’ve learned is necessary if/when the recovery occurs down the road. I have the risk tolerance for the drawdown, and have mostly stayed invested with about 10% cash and concentrating in my highest confidence companies. And I did no in 2000 too (I owned CSCO for a long time! lol)

But would I do this again in 10 years? Nope.