What Is Maximum Drawdown?

How Maximum Drawdown Is Calculated

To calculate max drawdown: look at every peak price in the stock's history. For each peak, find the lowest point before a new peak is set. The maximum drawdown is the largest of these peak-to-trough drops, expressed as a percentage. A stock that traded at $200, fell to $60, and then eventually recovered does not escape its history — that 70% drawdown stays on record regardless of where the stock is today.

What Counts as a "Normal" Max Drawdown?

Virtually every stock has experienced significant drawdowns at some point, especially through major market events like 2008, 2020, and various sector crashes. Rough reference points for large-cap US stocks:

• Under 30% — unusually stable; rare except for very defensive stocks like consumer staples
• 30–50% — normal for most S&P 500 components through a major market cycle
• 50–70% — significant historical risk; typical of growth and tech stocks
• Above 70% — extreme; the stock has been near collapse at least once

Max Drawdown vs Volatility: Different Measures of Pain

Volatility tells you about daily noise. Max drawdown tells you about catastrophe. A stock can have moderate day-to-day volatility but still have suffered an 80% drawdown during a crisis — because the drawdown captured a sustained trend, not random swings. For long-term buy-and-hold investors, max drawdown is often more emotionally and financially relevant than volatility: it measures the realistic worst case you might have to live through, or the worst case you might be forced to sell into.

How to Use Max Drawdown in Practice

Ask yourself: if this stock had repeated its maximum drawdown starting from today, what would my portfolio value look like? Could I hold through it — or would I need that money before recovery? A stock with a 75% historical drawdown requires a 300% gain just to return to its prior peak. That recovery can take years or decades. GlobalTrack shows max drawdown as part of the 8-factor risk fingerprint alongside volatility, beta, and trend — giving you the full picture.