Drawdown Analysis

What does this tell me? A drawdown is how much a sector fell from its highest point to its lowest point before recovering. Think of it as the worst-case scenario — if you bought at the peak and held through the bottom, how much would you have lost on paper? What should I do with this? Know your pain tolerance. If a −50% drawdown would make you panic sell, avoid sectors with that history. You need to be able to hold through the dip. Check recovery time. A big drop that recovers in 12 months is very different from one that takes 5 years. Longer recovery = more patience required. Compare to the total market (VTI). If a sector drops much more than VTI during a crisis, it's riskier. If it drops less, it's more defensive. Remember: Past drawdowns don't predict future ones exactly, but sectors that fell hard before tend to be more volatile. Plan for the worst, hope for the best.
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