Charlie Munger, the former vice chairman at Berkshire Hathaway, has a take on drawdowns worth quoting in detail:

“I think it’s in the nature of long-term shareholding with the normal vicissitudes in worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down by say 50 percent. In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50 percent 2 or 3 times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you are going to get—compared to the people who do have the temperament who can be more philosophical about these market fluctuations.”

Munger not only argues that you have to be calm about these declines, he goes further to suggest that if you cannot deal with them, “you deserve the mediocre result you are going to get.” In other words, big drawdowns are a price to pay for superior long-term investment returns.