Broker Check

Where is My Money Going?


By:  James C. Denton, CFP®, Founding Partner

March 24, 2023

We have a very lovable client base.  We get few questions, even fewer complaints, and lots of “we love you” feedback.  And not just in good times.  I’m talking about right now when you have to be a short-seller or clairvoyant to make any money in the market.  I rarely get serious grief from one of you, and when I do, I usually recognize that it – at least to some degree – is deserved.

Lately, we have begun to hear murmurs that give me a bit of pause.  For the most part they tend to revolve around a single issue:  “Why have I lost so much money?”.   I expect most of us have asked this question at one time or another, often, if you are like me, in the dead of night.  It is an entirely understandable sentiment, and you deserve an answer that you understand, that makes sense to you. 

My years of management experience have taught me a few things and one of them is that the guy in charge is responsible for everything that happens OR FAILS to happen.  Harry Truman had the plaque on his desk, “The buck stops here”.  So if you are unhappy, or even just a bit uncertain, and you want to take it out on me, even if it’s not strictly my fault, it is my job to do whatever I can to fix it.  And yelling back at you ain’t gonna fix it. Nor are excuses or lame explanations.  I fully acknowledge that to the extent that any customer of DFS Advisors has lost money, it is at least in some part my fault.  It is my job to manage and grow your money.

We need to begin by reframing the question.  In my opinion, the question as often asked is based on “facts not in evidence” if I can use a legal term.  The real question is not “why have I lost so much money”, but rather “why has my account value gone down so much?”  I agree that we have seen significant reductions in portfolio values since the beginning of 2022, but if we look back at the entire account performance from inception of the majority of our accounts, we find charts that looks like this.



What does this show us?  This investor has not actually “lost” money.  We, all of us, tend to fixate on market high points and lay claim to money which may not yet be ours.  A lot of the money we had on January 1, 2022 or whenever the high point was, was money that the market had, as it has turned out, only loaned to us.  It’s kind of like the tax deferral in tax-qualified accounts … you know the tax is coming due someday, the deferred portion is only a “loan”, but you get to keep the earnings the loan generates.

This chart reflects an actual account for a real client, but it could just as easily represent the stock market in general.  The risk tolerance, goals and objectives of this client are representative of our clients as a group, and this particular account has been managed consistently with the mainstream of our book of business.  Same investments, same overall asset allocation strategy.  This investor has not actually lost any money, they just gave some of their earnings back.  They, and most of the rest of us actually got way ahead of our long-term trend between 2020 and 2022, and have reverted back to trend in the current Bear market (note the heavy black trend line).  If I were to chart any single account, it would probably look a lot like this one.

What one must recognize to make sense of the result of market volatility at any particular point in time is that the market does not go either up or down in a straight line like a savings account might.  When the market is in a “Bull” phase, your account will trend up; in a bear market, your account will trend down; in good times and in bad there is an element of volatility.  We’re in a Bear market right now, but we have every reason to believe that at some point the Bull will return, and we will recover those “lost” funds.  All you have to do is stick around.  No, I can’t guarantee it, but there has never been a time in history when that wasn’t exactly what happened.  Market returns have not historically come in a straight line, but over the entirety of history, the trend has been, and continues to be up in spite of the current give back.  The volatility is the price we pay for the performance we are after.

And another key consideration … when that turning point comes, there will not be a trumpet call or a huge banner on CNBC – “TIME TO BUY”.  It will only be recognizable in retrospect and it’s like the lottery.  You gotta be in it to win it.  Accepting the volatility is your lottery ticket.

In his January newsletter, Aaron included a chart which shows market performance statistics by year since the beginning of the Great Depression. Fact:  In the 96 years since the 1929 crash, the market, as measured by the S&P 500 has gone up in 71 (74% positive) and 36 of those (37% of the time) were up more than 20%.  25 years were down, but 6 were down less than 5%, and only 6 were down more than 20%.  The worst year in that time period was 1931, -43.5%, and the best up year was 1933 at +54%   Fact:  Historically, the average good year is up more than 20% while the average bad year is down about 10%. 

Now I’m not trying to downplay your angst in any way at all or suggest it’s not valid.  It is.  While I can’t ask my advisor the same questions, I still feel the same emotions and I don’t like it any more than you do.  It’s unavoidable.  But it’s also transient.

I’ll say again, it’s my job to manage your money and to make it grow.  That is a long way from everything we do, but it is the most important for sure.  I think, though, that one important point that sometimes gets missed is …

Managing money, and making it grow, are not always the same thing.  These are two separate and distinct objectives, related to be sure, but sometimes they cannot be achieved simultaneously.  For example, if your income needs are greater than it is reasonable to expect your investments to generate with appropriate or prudent risk management, then the “making it grow” objective is going to set aside.  We just have to do what we can to make it last as long as we can but it probably is not going to grow.

That said, most of us are still expecting growth, and reasonably so.  But growth opportunities are currently scarce.  I am still focused on long term growth, but prudence demands that I acknowledge the reality of present conditions, and efforts to “beat the market” are likely to backfire.  The more appropriate goal now may be to preserve our ability to make money when the market improves.  Market conditions are temporarily out of whack and when the market is out of whack we have to respond reasonably and responsibly to the conditions that exist, not what we would like for them to be.  And reasonable and responsible always – in good times and bad - means owning things that we expect to do well, not today or tomorrow necessarily, but under normal long term market conditions.

Many very intelligent market participants believe that in times like these it may be appropriate to be entirely out of the market.  Put everything in cash or gold or crypto (???) and wait for the market to recover.  This strategy may work for someone managing his own money, or that of very aggressive and savvy investors, but it is for sure an aggressive strategy, not the conservative one you might think.  There are tax consequences which greatly reduce any profits you might preserve, and at the end of the day the biggest problem is – drum roll please – when to get back in.  Remember, no trumpets, and no CNBC announcements. 

To wrap this up … We acknowledge our performance over the past year or so has not been what we would have liked it to be, and in some cases, our average performance for this time period does not compare favorably to some of the indices that are commonly referenced.   But over longer time frames we stack up pretty well.  We seem to have stabilized somewhat with most accounts holding up fairly well over the past nine months.

Our current portfolio strategy is focused on companies which we expect to do well in a recovering economy.  Why?  Because (1) we are VERY confident that the market will, at some point recover, (2) when it does, it will do so without warning, and (3) the best performance usually comes either at the very beginning, or at the tail end of any bull market.  If you miss either, often you might as well miss it all.

I hope this addresses your questions adequately, but every case and relationship, of course, is to some degree unique.  If you have personal questions or concerns, you should feel free to voice them.  We would be pleased to have the opportunity to sit down with you individually and fully discuss your specific concerns and objectives, especially as they may have changed since our last conversation.  We are only a phone call away.


Content in this material is for informational purposes only and not intended to provide specific advice for recommendations for any individual.  All performance referenced is historical and is no guarantee future results.  All indices are unmanaged and may not be invested into directly.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.