Glossary

Maximum drawdown (MDD) is a risk measurement used in finance to quantify the largest decrease in the value of an investment or portfolio from its peak to its trough before a new peak is reached.

It's often expressed as a percentage and helps investors understand the potential loss an investment could experience during a specific period. MDD is crucial for assessing an investment's risk and performance. 📉📊

For example, if an investment portfolio's value increases from $100,000 to $200,000 and then drops to $120,000 before rebounding, the maximum drawdown is 40% (($200,000 - $120,000) ÷ $200,000).

Fun fact: The maximum drawdown can be an important factor when choosing a fund manager, as it indicates how well the manager has managed the portfolio during market downturns. Some investors prefer managers with lower MDDs, as it may suggest a more conservative and risk-averse approach. 🤓💼