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 built around two ideas. On one side were high-conviction allocations to technology and China. On the other sat an alternative fund designed to reduce overall portfolio volatility. It was never meant to eliminate losses. It was there to cushion them.
In 2021, everything looked easy. Double-digit returns. Plenty of optimism. As usual, many investors began believing investing was not all that difficult. Then came 2022. Interest rates rose at one of the fastest paces in decades. Technology shares were hit hard. China added regulatory crackdowns, a property crisis, lockdowns and rising geopolitical tensions. It was close to a perfect storm.
The alternative strategy did exactly what it was supposed to do. It helped cushion the decline. But it could not completely offset one of the worst years for growth investing in recent history.
To me, anyone with meaningful exposure to technology who lost money in 2022 was simply part of the game. I say that not to belittle the losses, but to remind investors that difficult years are the price paid for participating in long-term growth. The same strategy that creates exceptional returns over time will occasionally produce uncomfortable drawdowns.
This investor understood that at the beginning. We had discussed the risks. He accepted that volatility was inevitable. The investment itself was not even a significant portion of his overall wealth. Interestingly, other investors holding virtually the same portfolio stayed invested, made only minor adjustments and eventually benefited from the recovery. Same portfolio. Same market. Different reactions.
Unfortunately, patience has a way of disappearing when losses become real. After several difficult quarters, the conversations became increasingly uncomfortable. Eventually, the decision was made to restructure the portfolio into a much lower-volatility allocation while markets were still under pressure.
That reduced further downside risk, but like many defensive moves made during a crisis, it also meant the recovery became much slower. It took more than two years just to return to breakeven.
From a professional portfolio management perspective, I believe the process functioned reasonably well given the environment. Diversification worked. Risk was moderated. Without the alternative strategies cushioning the downside, the outcome could have been materially worse.
The investor saw it differently. After enduring two years of anxiety, breaking even felt like failure. The quality of the process meant very little compared with the emotional experience of living through it.
After several years of market swings, stress and uncertainty, he looked at the numbers and saw very little to show for it. From his perspective, he had committed capital, endured the emotional roller coaster and, after all that time, ended up with essentially no meaningful return. Understandably, the portfolio felt disappointing regardless of whether the investment process had worked as intended.
Then came the AI-driven rally. Technology recovered strongly, and almost on cue came the inevitable question: “Perhaps we should have stayed invested after all?” Hindsight is always the easiest investment strategy.
This is one of the more difficult parts of managing money professionally. If you remain disciplined, clients sometimes think you are doing nothing. If you make changes, you risk being told you missed the recovery.
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.