The Psychology of Drawdowns: A Stoic Approach to Volatility

Market corrections are inevitable, but our reactions to them aren’t. Understanding how to decouple self-worth from portfolio performance is the ultimate edge.

The Stoic Perspective

Marcus Aurelius once wrote, “You have power over your mind — not outside events. Realize this, and you will find strength.” In the context of a 20% drawdown, the market is the “outside event.” Your reaction—be it panic-selling or disciplined rebalancing—is within your power.

Embracing Uncertainty

Volatility is not a bug; it’s a feature of the markets. Without it, there would be no premium to collect. By anticipating drawdowns before they happen, we can practice what the Stoics called premortatio malorum—the premeditation of evils.

1. Acceptance: Recognize that drawdown is the price of admission.
2. Analysis: Is the strategy broken, or is it just the market?
3. Action: Follow the plan, not the emotion.