Major Drawdown

Hi Marty,

I am down 25-30% from last year. How do you normally deal with big draw downs, I am feeling pretty defeated but dont' want to give up. My big mistake has been trying to invest and trade in the growth names but days like today hurt as they all drop like flys. Some names are $DOCN, $GLBE, $U, $ABNB, etc

I am sorry to hear this! I was just speaking with two portfolio managers a few days ago who shared similar stories with me. Typically, if we use a stop-loss at 5% it takes quite a few losing trades to build up a 25%-30% drawdown in a stock portfolio. The stocks you mention are 55%-65% off their highs as they are going through their institutional due diligence phase.  They are all quality stocks, and will need time to appreciate.

What we DO NOT want to do is try and get it back all at once. When we have a large drawdown (It happens to everyone) we tend to over trade trying to get it back in. a hurry, and I have found that compounds our mistakes. Also, we lose confidence in our ability ti select stocks and be successful at winning in the stock market.

We are essentially trying to trade through a tough bear market right now. Just take a look at the Nasdaq and we can see the damage done to that index.  The high valuation growth stocks have been sold aggressively. Do not beat yourself up for a few losing trades.

What I do when I get into a slump is wipe the slate clean, and start over with one trade. Select a higher probability trade, or even in index fund (XLE or XLU comes to mind) trade  and take profits quickly just to get a win on your side. This will help you build back confidence in your abilities.

These drawdowns happen to everyone. Please use the post-analysis checklist so you understand what went wrong with your trades.

Never Give Up!

Regards,

Marty