I underperformed my benchmark by over 1000 basis points in Q1. Drawdowns never become easier regardless of how many times you have been through them and I have been through a lot over the years.
What makes them much more manageable after you get past a certain point in your understanding of markets is the melding of mind with action. To put it simply, experience in finance brings with it a required self-understanding. That understanding of self after a period of time allows an individual to essentially observe themselves, correcting potentially harmful thinking before it has a chance to inflict any real damage. Whereas, the uninitiated simply act on negative mental triggers, the experienced investor recognizes them, understands their origin, accepts them for what they are and moves on.
Nowhere else in an investor's career, regardless of pedigree, will you be more susceptible to erroneous action than during a drawdown. As obvious as this assessment may be, the lack of understanding surrounding its importance is expressed through countless investors who have overtraded, overexposed and leveraged themselves into obscurity after a difficult period of performance.
This happens as often to professional asset managers as it does your run of the mill retail investor. It is as if adversity converges along a mental line of action that is both instinctive and impulsive in nature.
The most effective reaction to a drawdown regardless of methodology is defensive in nature. As an example, previous allocation decisions that call for a 10% investment to an asset, should be cut in half, at the very least. Activity should be stemmed rather than encouraged. Decisions should be simplified and spread out, as opposed to convoluted and copious.
The instinctive reaction is one of catching up to dull the pain in as quick a manner as possible. If your method of investment is robust then natural progression of that method should naturally lead to desired results, any "pushing" of the method deviates from its original intent.
