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A Sense of Hopelessness


Lately your investment portfolio has probably felt like one long string of bad events that you couldn't control.

Have you ever experienced a day in your office or the hospital when nothing worked? Your electronic medical records system was down. You couldn’t get patients scheduled promptly to see specialists. On call doctors refused to admit patients. The nurses couldn’t get IVs. You felt helpless and couldn’t control anything.

You might feel the same way with your investment portfolio. As I discussed in my last two articles (Did You Catch the Wave … or Miss the Boat? and The 100% Returns You Missed), you should have had enormous returns over the past two years, but what followed in July and August was brutal.

Here’s a rundown of the bad events that have happened so far this year:

  • Continued weakness in the U.S. housing market
  • U.S. unemployment at 9%
  • U.S. debt ceiling at $14 trillion, the highest ever
  • Possible U.S. debt crisis
  • U.S. government bonds downgraded to AA+ from AAA
  • Speculation of U.S. bond market bubble
  • Ending of Federal Reserve QE2 program
  • Turmoil in Middle East: Egyptian president ousted
  • Greece and Europe debt crisis
  • Fifth largest earthquake ever recorded hits Japan
  • U.S. attacks Libya
  • Economists concerned about high inflation
  • Fed concerned about deflation
  • Gas prices hit $4 per gallon

Look at the losses of various asset classes over the past two months assuming you started with $500,000 on July 1, 2011:

With the wild swings in stock markets around the world, you may be feeling anxiety, fear and powerlessness. While these are completely natural responses to events beyond your control, acting on your emotions can end up doing you more harm than good.

The increase in market volatility was an expression of uncertainty over the confluence of events, from the possible U.S. government default to the economic meltdown in Europe. Anytime perceived risk is high, it takes lower prices to induce you to invest in riskier assets. That’s why investors fled from stocks to the perceived safe havens of bonds and gold. This resembled the events of 2008, when the collapse of big financial institutions and the sub-prime mortgage crisis triggered a global market crisis.

Unfortunately, no one knows for sure what’s going to happen next. That’s the nature of risk, and it’s that uncertainty that has led to stocks having a far higher return over time than so called “risk free” investments such as very short-term U.S. government bonds (called Treasury bills).

It’s tough for you to invest in this difficult, risky, and highly uncertain environment. So next week I’ll help you make living with this volatility more bearable.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice