PERFORMANCE IN DOWN MARKETS

“A market downturn is the true test of an investment philosophy.” Seth Klarman

“I feel the most objective test as to just how conservative our manner of investing is arises through evaluation of performance in down markets.” Warren Buffett

“True managers need to be tested in multiple business cycles to prove their compound annual return is consistent over long periods of time.” Thomas Kahn

"I have consistently told partners that we expect to shine on a relative basis during minus years for the Dow, whereas plus years of any magnitude may find us blushing." Warren Buffett, Partnership Letter 1962

“If you run your portfolio to be fine in an upward market, if you're in the game, you will have exposures that you wish you didn’t have in a worse market.” Seth Klarman

"The other characteristic I look for in a money manager is when I look at their record, I immediately go to the bear markets and see how they did. I want to make sure I've got a money manager who knows how to make money and manages money in turbulent times, not just bull markets." Stanley Druckenmiller

“Good long-term performance results from beating the market in bad times. Caution should not be seasonal.” Christopher Browne

“As money managers we have to build portfolios that can survive all environments – neutral, positive, negative ... and worst-case.” Zeke Ashton

“Because ensuring the ability to survive under adverse circumstances is incompatible with maximising returns in the good times, investors must choose between the two.” Howard Marks

“Outperform the market in bad times.” Julian Robertson

"The cost of performing well in bad times can be relative underperformance in good times." Seth Klarman

“Our goal is to do better on the downside, do reasonably well in the upside, and have way above average peak to peak numbers. That happens most of the time. That is certainly the goal.” Chuck Royce

"Our performance was usually etched by doing only about as well as the market on the upside, yet going down significantly less when the market inevitably stumbled." John Neff

“You win by not losing. The less you lose in difficult times the less you have to make up in good times. Over the long run you will do well.” Kurt Winrich

“Losing less in down markets is important. It’s much more conservative compounding.” Rajiv Jain

“Everybody looks smart when markets are going up. Just ride the wave and you'll do just fine. The key for a good investor is how do they do in these downturns?” Henry Kravis

"[Our] fund will tend to better in slightly down to indifferent markets and not to do as well as our growth-orientated colleagues in good markets." Peter Cundill

“We would rather underperform in a huge bull market than get clobbered in a really bad bear market.” Seth Klarman

"We truly believe the key to investment success is losing less than the market during declines - losing small is more important that winning big. The math works and it keeps you in the game when you should be." Brian Krawez

"The true investment challenge is to perform well in difficult times. It is unfortunately not possible to reliably predict when those times might be. The cost of performing well in bad times can be relative underperformace in good times. We have always judged that a worthwhile price to pay." Seth Klarman

"I have pointed out that any superior record which we might accomplish should not be expected to be evident by a relatively constant advantage in performance compared to average. Rather it is likely that if such an advantage is achieved, it will be through better-than-average performance in stable or declining markets and average, or perhaps even poorer-than-average performance in rising markets." Warren Buffett, Partnership letter 1960

“We will underperform in very strong up years. We’ll probably, more or less, match in moderate up years. We’ll do better than average in even years or down years. And I have said, and I’ll continue to say, and it’s been true that over any cycle, we will — I think we will overperform. But there’s no guarantee on that.” Warren Buffett, Berkshire Meeting 2014

"We are really set up so that if the market is up 40 or 50 percent, we're not going to keep up with it. Our investors know that, and we know that. But we think we can keep up in a reasonably good market of 10 to 20 percent, and we'll beat the socks off of 'em, I think, if the market is down or flat." Julian Robertson

“Our results since inception have been large, out-sized multi-year gains during periods of market distress (2001 to 2004) and reasonable, index matching/bettering multi-year results during stock market boom periods (2005 to 2007). This follows the predicted path outlined in the June 2002 Nomad letter when we quoted a Buffett Partnership letter from 1960: “I have pointed out that any superior record which we might accomplish should not be expected to be evidenced by a relatively constant advantage in performance compared to the Average. Rather it is likely that if such an advantage is achieved, it will be through better-than-average performance in stable or declining markets and average, or perhaps even poorer-than-average performance in rising markets.” And we certainly do not have a relatively constant advantage compared to the average.” Nick Sleep

“Our portfolio has tended to lag world equity markets in months and quarters when they were rising, but to do better than markets when they were falling. This means we’re usually failing to reap for our clients the full bounty of rising markets or, in falling markets, we’re losing our clients money. For instant gratification, you must look elsewhere.” Andy Brown

"I expect bear markets to be most favourable for the fund in terms of relative performance. Generally speaking, this means I expect the fund will fall less than the market in a bear market. Similarly, I expect that in the event of a general bull market in stocks, the fund will not shine so brightly in terms of relative performance. The math of investing would favour the fund, however, over several bull and bear market cycles because, on a percentage basis, lost dollars are simply harder to replace than gained dollars are to lose. The emphasis will always be placed first on preventing the permanent loss of capital, and good results should follow.” Michael Burry

“With an average holding period of roughly five years, we also maintain a very long-term investment horizon. In short, we aim to not engage in the more volatile segments of the market or in more volatile behaviours. Through this lens, it is quite understandable that we might underperform the market during sharp recoveries or more ebullient periods when companies with higher leverage, lower profitability, and greater cyclicality are leading. It is equally understandable why we have tended to outperform during more challenging periods when strong ongoing fundamentals have resulted in less fluctuation to the downside.” Jeff Mueller

"When the market goes up, I try to capture 70 to 80 percent of the move, and when the market goes down, I try to lose only 30 or 40 percent of it." Martin Taylor

"What should matter is capital enhancement in bull markets and capital preservation in bears; in other words, absolute, not relative, returns." Barton Biggs

"When thing get really rocky, our companies and our portfolio tend to hold up much better. So people don't lose as much money. That to us, is the name of the game. The less you lose in difficult times, the less you have to make in very, very good times. If you can lose less, over the long run you're going to do really well." Paul Black

"There is a time when it's essential that we beat the market, and that's in bad times. Our goal is to generate performance that is average in good times (although we'll accept more) and far above average in bad times. If in the long run we can accomplish this simple feat (which time has shown isn't simple at all), we'll end up with (a) above-market performance on average, (b) below-market volatility, (c) highly superior performance in the tough times, helping to combat people's natural tendency to "throw in the towel" at the bottom, and thus (d) happy clients. We'll settle for that combination." Howard Marks

"For years I’ve literally drawn a curve that says how much I’m willing to lose in the portfolio overall for any given movement in the market. At one end of the curve is a 1929-style event, where I’ve concluded I can accept being down around 30%. At 50%, 40%, 30% downdrafts I want to be down no more than half that level. If the market’s up or down 5%, I’m willing to match the market. Then on the upside the capture ratio starts to tail off. Say the market is up 30%, we can be up 20% and that’s just fine. My job is to deliver on that utility curve, and to beat it if I can." Adam Weiss

“Our advantages should be gained during years or periods when the market is flat or is down. We only hope to keep up during rising markets, and during rapidly advancing periods certainly expect to lag behind. In no way do we believe we will, or even that we should make money during down markets. However, we would be thrilled with a 15% loss if the market fell by 40% (though we’re not sure all of you would be as pleased as us). We would rather lose far less money during a big decline than to make 20% when the market was ahead by 20%.” Christopher Bloomstran

“I think one of the very big reasons that Polen Capital has [outperformed by c5%pa] is the protection that our portfolio sees in down markets. Crucial to compounding wealth over many years is that you don’t lose the gains you made in up markets when the inevitable down market comes. And nobody announces when the market is going to go down, you just have to be prepared for it. When you lose as much or more than the market in down years it impairs your ability to compound your wealth. Historically when the market goes down, our portfolio declines a lot less. Over the 20 years, our downside capture is about 50%, or one-half the market’s declines. That allows us to keep compounding wealth for our clients off of a higher base. I think it’s something that a lot of investors don’t realize.” Daniel Davidowitz 2010