Every advisor has a story like this. A sophisticated investor. A well-constructed portfolio. Then the market decides to test everyone’s conviction at the same time. This happened during the 2020–2022 period.
The portfolio was structured as a diversified trade. One side held high-conviction allocations to equities. The other was an alternative fund designed to reduce overall portfolio volatility. It was there to cushion them when markets turned against us.
In 2021, everything looked easy with double-digit returns and plenty of optimism. Then came 2022. Interest rates rose at one of the fastest paces in decades. Risk assets were hit hard.
The alternative strategy did exactly what it was supposed to do. It reduced the damage in one of the worst years for growth investing in recent history.
I’m not going to belittle losses but to remind investors that some difficult periods are the price paid for long-term growth. The same strategy that delivers exceptional returns over time will occasionally produce uncomfortable drawdowns.
Unfortunately, patience often disappears when losses become real. After several difficult quarters, the portfolio was restructured into a lower-volatility allocation while markets were still under pressure. It reduced further downside risk, but it also meant the recovery became much slower. It took more than two years just to return to breakeven.
From a portfolio perspective, the process worked as intended. Diversification helped. Risk was moderated. The investor saw it differently. After several years of market swings, stress and uncertainty, he looked at the numbers and saw virtually nothing to show for it. He had committed capital, endured the emotional roller coaster and, after all that time, ended up with little or no meaningful return.
Then came the AI-driven rally. Technology recovered strongly and well, hindsight is always the easiest investment strategy. Most of the time, portfolio managers are simply making the least-bad decision with the information available at that moment. Markets do not tell us the ending in advance. They only reveal it afterwards.