What Is Loss Recovery Math? Definition and Example
Why a 50% loss needs a 100% gain to get back to even, the full table of losses and required gains, and why it makes drawdown control so valuable.
GlossaryGlossary
What Is Max Drawdown? Definition and Example
The formula for maximum drawdown, how to calculate it for your own portfolio, and what real crashes did to the S&P 500 index.
Key takeaways
- Max drawdown is the largest peak-to-trough fall in a portfolio’s value over a period, in percent: (trough − peak) ÷ peak.
- In Exent’s data, the SPDR S&P 500 ETF (SPY) fell 56.5% from peak to trough in the 2007–09 financial crisis and 34.1% in the 2020 COVID crash.
- Drawdown measured on month-end prices looks smaller than on daily prices: SPY’s 10-year figure is 34.1% daily but 23.9% monthly.
- Max drawdown tells you the worst ride you would have had to sit through, which volatility alone does not.
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What is max drawdown?
Max drawdown (MDD) is the biggest percentage drop from a high point to a later low point before a new high is reached. It measures the worst loss an investor would have seen on paper if they had bought at the top and held to the bottom.
See how this applies to your own holdings with an Exent portfolio check.
How do I calculate max drawdown?
Max drawdown = (trough value − peak value) ÷ peak value. To find it across a history:
- List your portfolio value at each date (daily is best).
- Track the running peak: the highest value so far.
- At each date, compute value ÷ running peak − 1. That is the current drawdown.
- The most negative number in that column is the max drawdown.
Illustrative: a portfolio rises to $130,000, falls to $91,000, then recovers. Max drawdown = (91,000 − 130,000) ÷ 130,000 = −30%.
Example: real crash drawdowns
| Crisis | SPY (S&P 500) | QQQ (Nasdaq-100) |
|---|---|---|
| Financial crisis, 2007–09 | −56.5% | −53.6% |
| Trade-war selloff, 2018 | −20.2% | −22.9% |
| COVID crash, 2020 | −34.1% | −28.6% |
| Inflation bear market, 2022 | −25.4% | −34.6% |
| Tariff selloff, 2025 | −19.0% | −22.9% |
Why max drawdown matters
Losses compound against you: a 34% fall needs a 52% gain to get back to even (see loss recovery math). It is also the number that decides whether a self-directed investor holds or sells near the bottom. The Calmar ratio divides return by max drawdown for that reason. The stress test guide explains how to replay a portfolio through past crashes.
Common mistakes
- Using monthly data: it hides intra-month lows and understates the real drawdown.
- Measuring only a calm period: a 5-year window may miss the crash that defines the risk.
- Ignoring today’s weights: past drawdown of an old portfolio says little about the one you own now.
- Reading it as a floor: the next drawdown can be larger than any in your sample.
See your portfolio’s max drawdown with Exent
- Upload a screenshot of your holdings, or a CSV, Excel, PDF or Google Sheet; no brokerage login.
- Portfolio Analysis shows your drawdown and replays your current holdings through 2008, 2018, 2020, 2022 and 2025, with the loss in dollars.
Frequently asked questions
There is no universal number. Compare it with a benchmark of similar risk and with the loss you could sit through without selling. A stock-only portfolio has historically had drawdowns above 30% in major crashes.
No. Volatility measures how much returns swing around their average. Max drawdown measures the single worst peak-to-trough loss, which is what investors actually feel.
It depends on the size of the fall and the returns afterwards. Bigger drawdowns need disproportionately larger gains, so recovery time grows quickly with depth.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.