PT - JOURNAL ARTICLE AU - Chi Keong Lee TI - Expected Drawdown Management: <em>An Ex-Ante, Long-Term Approach to Portfolio Construction</em> AID - 10.3905/jwm.2016.18.4.065 DP - 2016 Jan 31 TA - The Journal of Wealth Management PG - 65--74 VI - 18 IP - 4 4099 - https://pm-research.com/content/18/4/65.short 4100 - https://pm-research.com/content/18/4/65.full AB - This article describes a different approach to constructing portfolios; one based on the investor’s forward-looking, long-term expectation of peak-to-trough loss from investments (expected drawdown). The argument is made that expectation of the future peak-to-trough loss from an investment should be used as a true measure of risk capital that the investor is committing to the investment. This article further introduces a new metric that quantifi es the investor’s ex-ante view that two investments will experience their expected drawdowns at the same time (the expected co-drawdown). These two metrics combine into a new portfolio construction methodology (expected drawdown management) allowing investors to optimally construct portfolios based on controlling for the investor’s expectation of future peak-to-trough loss at the portfolio level.TOPICS: Portfolio construction, risk management