Drawdown Analysis: What Berkshire Hathaway's Three Bear Markets Teach About Timing
- 6 days ago
- 8 min read
Warren Buffett recently said that Berkshire Hathaway has the best odds of any company of still being around 100 years from now. He might be right, but he wasn't talking about performance. What he was talking about is corporate survival.
When Buffett talks about endurance, he is making a solvency statement. BRK has permanent capital, decentralized operating businesses, a self-funded insurance float, minimal refinancing risk, and no dependence on capital markets to survive. All of that makes the company extraordinarily durable through recessions, credit events, inflationary periods, and policy mistakes.
Warren Buffett recently said that Berkshire Hathaway has the best odds of any company of still being around 100 years from now. He might be right, but he wasn't talking about performance. What he was talking about is corporate survival.
When Buffett talks about endurance, he is making a solvency statement. BRK has permanent capital, decentralized operating businesses, a self-funded insurance float, minimal refinancing risk, and no dependence on capital markets to survive. All of that makes the company extraordinarily durable through recessions, credit events, inflationary periods, and policy mistakes.
But it doesn't mean his stock will avoid painful future declines.
The dot-com bear market is a clear example. From 2000 to 2003, the S&P 500 suffered a -49% peak-to-trough drawdown. The decline came quickly, and for investors who lived through it, it was brutal.
Berkshire impressively declined less, with a drawdown of roughly -25% over that same period. It fared better because it had little exposure to speculative technology and extreme valuations that dominated portfolios leading into the crash. The difference also showed up in recovery time. S&P 500 investors needed about seven years to fully recover. Berkshire shareholders needed closer to four years, understanding dynamics detailed in Margin Debt Record $1.18 Trillion Marks Elevated Risk Before Fed Decision.
That story changed in 2008. The financial crisis produced a very different kind of bear market. Credit markets broke, leverage was forcibly unwound, and risk was repriced across the entire system. Berkshire, with its large insurance operations and exposure to financial institutions, was no longer insulated. The stock suffered a -54% drawdown, nearly matching the S&P 500's -57% decline.
Recovery took time. The S&P 500 required roughly 5.5 years to regain its 2007 peak. Berkshire Hathaway recovered slightly faster, in about five years, but the difference was marginal. Buy-and-hold investors did recover once again. But they did so only after enduring one of the deepest and most punishing drawdowns in modern market history, applying frameworks detailed in Gold vs S&P 500: Let Price and Timing Decide Not Long Term Bias.
In 2022, the market faced a different kind of stress. Rapid interest-rate increases following COVID-19 forced a broad repricing of risk assets across equities and bonds. The S&P 500 suffered a -25% drawdown, and Berkshire Hathaway fell about -26%. There was little difference in recovery time. The S&P 500 took roughly two years to regain its prior highs, while Berkshire recovered in about 16 months.
Even so, the math of drawdowns did not change. A 50% decline required a 100% gain just to get back to even. Even a 25% drawdown still requires a 33% gain to recover. Time helps, but time is not free, especially for investors who are withdrawing capital or approaching retirement. Berkshire survived all three major bear markets, but its shareholders still paid the price of the drawdown, understanding timing patterns detailed in Seasonality in Forecasting: Early November Cycle Lows Using Historical Pattern Recognition.
What stands out in hindsight is that the damage was not constant. It was concentrated. The worst losses occurred during specific, identifiable windows: the valuation collapse of 2000-2002, the credit failure of 2008-2009, and the rate shock of 2022. Avoiding even part of those periods would have materially reduced drawdowns while still allowing bull-trend participation.
That is where timing matters. You did not need to be perfect. In each case, the long-term and intermediate cycles had already rolled over, signaling a shift from accumulation to capital preservation. Recognizing that shift reduced drawdowns from 50%+ to only a few percent, and in many cases created opportunities to profit from downside moves rather than absorb them.
Berkshire may be one of the most respected companies in the investment world, but its chart proves an important point. Even the strongest businesses, including those likely to be around 100 years from now, can still deliver gut-wrenching drawdowns along the way.
Buy and hold may keep you from missing major runs, but it also keeps you fully invested during the worst declines.
Buy and hold is not wrong. It is incomplete.
And that is why in 2026 we will stay invested when the odds favor growth, and step aside as risk rises. We will continue to use cycles to align our capital with opportunity, not emotion. When trends are intact, we will stay engaged, as we are now. When cycles roll over, we will protect those gains and either prepare for the next advance or trade the bearish trend instead.
Our objective is not to trade more frequently. It is to compound more efficiently. Especially through ever-changing market conditions.
People Also Ask About Drawdown Analysis
What is drawdown analysis in investing?
Drawdown analysis measures the decline from a peak to a trough in an investment or portfolio showing both the magnitude of loss and the time required to recover. It focuses on the actual experience of holding through declining markets rather than just annual returns. A -50% drawdown means an investment fell 50% from its highest point before bottoming.
The recovery math matters as much as the decline. A 50% loss requires a 100% gain to break even. A 25% loss needs a 33% gain. Time helps, but time is not free for investors withdrawing capital or approaching retirement. Drawdown analysis reveals the cost of staying invested through major bear markets even in quality holdings like Berkshire Hathaway.
How did Berkshire Hathaway perform in bear markets?
Berkshire Hathaway performed better than the S&P 500 in the 2000-2003 dot-com crash with a -25% drawdown versus -49% for the index. It recovered in four years versus seven for the S&P 500. But in 2008-2009, Berkshire's -54% drawdown nearly matched the S&P 500's -57% decline because of its insurance operations and financial institution exposure.
In 2022, Berkshire fell -26% versus the S&P 500's -25% drawdown, recovering in 16 months versus two years. The pattern shows corporate survival does not prevent painful declines. Even the strongest businesses can deliver gut-wrenching drawdowns. The question becomes whether timing those declines matters more than just enduring them.
Why does drawdown recovery take so long?
Drawdown recovery takes long because of the asymmetric math between losses and required gains. A 50% decline needs a 100% gain to break even, not another 50%. A 25% loss requires a 33% gain to recover. Markets rarely move straight up after bottoms, so generating those recovery gains takes time through multiple intermediate advances.
The 2000-2003 dot-com crash required seven years for S&P 500 recovery. The 2008-2009 financial crisis needed 5.5 years. Even the 2022 rate shock took two years. Berkshire recovered faster in some cases but still required years of waiting. For investors withdrawing capital or approaching retirement, that time cost matters beyond just the percentage lost.
Can cycle timing reduce drawdowns?
Cycle timing reduces drawdowns by identifying when long-term and intermediate cycles roll over signaling shifts from accumulation to capital preservation. In each major bear market, those cycles had already turned down before the worst damage occurred. The valuation collapse of 2000-2002, the credit failure of 2008-2009, and the rate shock of 2022 all showed cycle deterioration before major declines.
Recognizing those shifts reduced drawdowns from 50%+ to single digits in many cases. You did not need perfect timing. Avoiding even part of those concentrated loss periods materially improved results while still allowing bull-trend participation when cycles turned back up. The approach creates opportunities to profit from downside moves rather than just absorbing them through buy-and-hold endurance.
Is buy and hold wrong for drawdown management?
Buy and hold is not wrong for drawdown management. It is incomplete. Buy-and-hold keeps you from missing major runs, but it also keeps you fully invested during the worst declines. Berkshire shareholders who held through 2008-2009 endured a -54% drawdown and five-year recovery. They eventually recovered, but only after one of the deepest drawdowns in modern market history.
The damage was concentrated in specific identifiable windows when cycles had already rolled over. Staying invested when odds favor growth makes sense. Staying invested when cycles signal preservation does not. The objective is not trading more frequently. It is compounding more efficiently through ever-changing market conditions by aligning capital with opportunity, not emotion.
Resolution
Drawdown analysis of Berkshire Hathaway's three bear markets teaches that corporate survival does not prevent painful declines even in the strongest businesses. The dot-com crash produced a -25% Berkshire drawdown requiring four years to recover. The 2008 crisis created a -54% decline needing five years. The 2022 rate shock brought a -26% loss taking 16 months to repair.
The damage was not constant. It was concentrated in specific identifiable windows when long-term and intermediate cycles had already rolled over signaling shifts from accumulation to capital preservation. The valuation collapse of 2000-2002, the credit failure of 2008-2009, and the rate shock of 2022 all showed cycle deterioration before major declines began.
Avoiding even part of those periods would have materially reduced drawdowns while still allowing bull-trend participation. A 50% decline requires a 100% gain to recover. A 25% decline needs a 33% gain. Time helps, but time is not free for investors withdrawing capital or approaching retirement. Cycle timing does not require perfection. It requires recognizing when structure shifts from supporting advances to favoring preservation.
Join Market Turning Point
Most investors believe buy-and-hold protects capital through quality holdings like Berkshire Hathaway. This drawdown analysis shows that assumption is incomplete. Corporate survival does not prevent gut-wrenching declines. Even Buffett's company suffered a -54% drawdown in 2008 and took five years to recover despite its permanent capital and decentralized operations.
The lesson is not that buy-and-hold is wrong. The lesson is that staying invested when cycles signal preservation rather than accumulation exposes capital to concentrated damage. The 2000-2003 dot-com crash, 2008-2009 financial crisis, and 2022 rate shock all showed cycle deterioration before major declines. Recognizing those shifts reduced drawdowns from 50%+ to single digits in many cases.
Learn how drawdown analysis guides timing decisions at Market Turning Point using cycle positioning to identify when risk shifts from offensive to defensive. Understand how long-term and intermediate cycles rolling over signal concentrated loss periods before they develop. See how avoiding even part of those windows materially improves compounding while still participating in bull trends. Master aligning capital with opportunity rather than emotion through systematic frameworks that stay invested when odds favor growth and step aside when cycles signal preservation.
Conclusion
Drawdown analysis shows Berkshire Hathaway's three bear markets teach that timing matters more than corporate quality for managing declines. Despite having the best odds of surviving 100 years, Buffett's company delivered painful losses in each major bear market requiring years of recovery even with permanent capital and decentralized operations.
The damage was concentrated in specific windows when cycles had already rolled over. The valuation collapse of 2000-2002, credit failure of 2008-2009, and rate shock of 2022 all showed cycle deterioration signaling shifts from accumulation to preservation. Avoiding even part of those periods reduced severe drawdowns to single digits while still allowing bull-trend participation when structure improved.
Buy and hold is not wrong. It is incomplete. It keeps you from missing major runs but also keeps you fully invested during worst declines. The objective is not trading more frequently. It is compounding more efficiently through ever-changing market conditions. In 2026 we will stay invested when odds favor growth and step aside as risk rises using cycles to align capital with opportunity. When trends are intact, we stay engaged. When cycles roll over, we protect gains and either prepare for the next advance or trade the bearish trend. The math of drawdowns does not change, but recognizing when damage concentrates makes the difference between enduring major declines or avoiding them through systematic timing.
Author, Steve Swanson