Why Market Drops Are the Price We Pay for Big Gains

Every so often, a research report crosses my desk that makes me stop everything.

I’m talking about the kind of work that money managers, hedge fund titans, and veteran investors all read — because they know it’s worth its weight in gold.

This report — “Drawdowns and Recoveries” — was written by none other than Michael Mauboussin, one of the sharpest minds in finance.

If you’re not familiar with him, here’s what you need to know.

Michael Mauboussin isn’t your typical Wall Street analyst. 

He’s a deep thinker — a guy who blends psychology, probability, and hard market data into insights that have reshaped how the pros think about investing. 

When he writes, the smartest people in the room stop talking and start taking notes.

This latest piece is no exception.

It’s about something every investor will face — market drops — and how those who stay the course come out on top. 

Let me break it down for you, Prosperity Insider style: five big takeaways that could change the way you look at every market pullback from now on.

Takeaway #1: Big Drops Are Normal — Not the End of the World

Most investors act surprised when the market falls 10% or more. However, Mauboussin’s data shows that these drawdowns happen frequently.

Since 1985:

• The S&P 500 has seen a 10% drop in 84% of all years.
  

• And a 20%+ drop in about 15% of them.

That’s not a crisis. That’s the cost of admission.

Takeaway #2: The Bigger the Drop, the Bigger the Rebound

Here’s what separates successful investors from the rest:

They’re still holding when the market bounces back.

Following the five largest drawdowns since 1929, the S&P 500 returned an average of +39.2% in the 12 months after the bottom.

Miss that recovery, and you miss a lifetime of returns.

The lesson? The bigger the fall, the stronger the comeback — if you’ve got the discipline to stay invested.

Takeaway #3: Time in the Market Beats Timing the Market

No one — not even the pros — can consistently pick tops and bottoms.

As Mauboussin shows, the risk of missing just a few of the best days can destroy your returns.

But long-term investors — those who ride out the dips — tend to come out ahead, again and again.

The key is staying in the game.

Takeaway #4: Volatility Feels Worse Than It Is

The emotional hit from a big drawdown often feels worse than the actual financial impact.

Mauboussin shows that when you zoom out over the long term, even the worst market drops shrink into perspective.

They become small blips on a long upward slope.

That’s why perspective isn’t just helpful — it’s powerful.

Takeaway #5: Patience Is the Ultimate Edge

Mauboussin’s data confirms what every Prosperity Insider should know by heart: Your greatest edge as an investor is patience.

His research shows that recoveries are powerful — but only for those who stay the course.

As Warren Buffett famously said, “The stock market is a device for transferring money from the impatient to the patient.”

If you can ignore the noise, hold quality businesses, and let time do the work… you’ve already won.

Bottom Line

Michael Mauboussin’s research lays it out in black and white:

1. Drawdowns are normal.
   

2. Recoveries are powerful.
   

3. Time beats timing.
   

4. Volatility is survivable.
   

5. And patience is your edge.

At Prosperity Insider, we don’t fear corrections — we expect them. 

Because we know that staying the course isn’t just good advice…It’s how real wealth is built.

Email me at [email protected].

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Regards,

Charles Mizrahi
Prosperity Insider