Large drawdowns happen a lot more often than you probably care to think about.
Oh, and as you can see, it’s becoming harder and harder to protect yourself with diversification because a “rising tide that lifts all boats” cuts both ways – it also “lifts” cross-market and cross-asset correlations to “1”…
This seems like a good time to remind you what Morgan Stanley said a few Sundays ago…
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When a tail event isn’t actually a tail event.
Via Morgan Stanley
Large equity drawdowns are more common than you might think: Start at any date since 1950,and the likelihood of the S&P 500 being 15%+ lower after 12 months is 8%. But that ignores an important scenario. What if stocks drop more than 15%, only to recover before the year is out? Allow for that (i.e., down 15% or more from current levels at any point),and the likelihood rises to 18%.
