temperament
Hold Through Drawdowns
The rule
Almost every giant winner fell 50% or more at some point. You earn the full return only by holding through the scary drops instead of selling.
Where it flips
Blind holding also traps people in truly broken businesses, where a 50% fall is the market correctly pricing in lasting damage. The fix: hold through big falls only when the business itself is still whole. Learn to tell a falling price apart from a failing company.
The path from a small stock to a huge one is never a smooth line up. Along the way the price will often halve, sometimes more than once, on bad news, a weak market, or plain fear. Investors who sell during those falls lock in the pain and miss the recovery that follows. To capture the whole journey, you must decide, before the storm, that a business you believe in is worth holding through a 50% paper loss.
A worked example
Arjun's ₹2 lakh stake in a quality lender drops to ₹90,000 during a market panic. He sits still, because the business is unbroken. Eight years later, after several such scares, the holding is worth ₹18 lakh, a return he would have thrown away by selling in the fear. [illustrative]
How to spot it
- ·Business basics still intact
- ·Fall driven by fear, not real damage
- ·Willing to bear a 50% paper loss
Christopher Mayer · 100 Baggers