What is drawdown?
By SWAN Score · Published · 3 min read
Drawdown is a decline from an earlier high. If a price reaches 100 and then falls to 80 before returning to that high, its drawdown at 80 is 20%. Maximum drawdown is the deepest such fall in the period you measure.
It answers a different question from annual return: how far did it fall along the way?
A simple example
Imagine an adjusted price series that moves from 100 to 110, then falls to 88. The earlier high is 110, not the starting price of 100. The fall is 22, and 22 divided by 110 is 20%.
In percentage terms, drawdown is (earlier high minus later price) divided by the earlier high, multiplied by 100. This article expresses the fall as a positive magnitude; some charts use a negative percentage instead.
These are hypothetical prices for explaining the arithmetic. They are not the historical results of a particular fund or a forecast.
A loss and its recovery are not equal percentages
After a fall from 100 to 80, returning to 100 requires a gain of 25%, not 20%. The gain is measured from the smaller base: 20 divided by 80.
A 50% fall requires a 100% gain to return to the old high. This arithmetic does not tell you whether or when recovery will happen. Some investments do not regain their earlier highs.
The time window matters
Maximum drawdown depends on the record you examine. Five years and fifteen years may contain different high points and different declines. A newer fund may not have existed during an older market downturn.
Compare the observation periods and the price conventions, not just the percentages. A distribution-adjusted series is not the same as an unadjusted share-price chart, particularly for investments that pay substantial distributions.
One maximum-drawdown number does not describe every decline, the length of every recovery, or the risks that have not yet appeared.
How SWAN Score uses drawdown
SWAN Score’s Drawdown signal considers falls and time below earlier highs over up to 15 years. Its 0–100 score runs in the direction of calmness: higher means calmer observed behavior. It is not the drawdown percentage.
The report separates the deepest fall in the scored window from the deepest fall across the full available record. An older decline outside the scored window can make the full-record figure larger.
The calculation uses prices adjusted for splits and payouts. That helps provide a consistent historical series, but it is not a reconstruction of your account after taxes, fees, or personal transactions.
Sources
Curious about a ticker? Look up a SWAN Score. Historical data only, not advice.