Risk Management in a Growth Portfolio

Growth portfolios experience larger drawdowns than value portfolios. This is not a problem to be eliminated — it is a characteristic to be managed. Investors who cannot tolerate the drawdown will sell at exactly the wrong moment and eliminate the long-term advantage.

Why This Matters

Growth investing requires accepting volatility that would be intolerable if applied to a concentrated single position but becomes manageable when distributed across a portfolio of well-researched ideas. The risk management challenge in a growth portfolio is different from a value portfolio: rather than protecting against permanent capital loss from overpaying for poor businesses, it is protecting against selling quality businesses during temporary drawdowns caused by multiple compression, earnings misses, or broad risk-off markets.