Imagine for a moment an intrepid traveller leaving on a long expedition to some remote locale on December 31, 2010. He puts his affairs in order, leaves New York Harbor on his yacht and checks the S&P 500 index one last time before becoming incommunicado. A year later, he returns to that illustrious skyline, checking to see how the market has done in his absence. Hmmm, down .003 percent. He might conclude that, from an investing point of view, 2011 was the most boring … year … ever.

Too often the term volatility is used as a euphemism for a bear market. In fact, if stocks are having a banner year, the “V-word” is rarely used, regardless of how erratic the upward trend might be. But in 2011 it definitely applied, as prices gyrated like a string of hula girls while commentators breathlessly explained the reaction to this or that news item or rumour.

This reached epic proportions between August 8 and 11, four days of raucous trading during which the S&P 500’s closing percentages were down 6.7, up 4.7, down 4.4 and up 4.6. So much for the summer doldrums!

What caused 2011’s bipolar disorder? The fixation on Europe’s financial crisis, and what may or may not be done about it, certainly contributed. So too did the melange of economic data, which at one moment suggested that the recovery was making progress, while indicating the next that the business cycle was sliding back into recession.

But the cause of the mercurial mood may be more elemental than that: a tug of war between two fears inhabiting the collective consciousness of investors. On the one hand, there is the apprehension associated with towers of debt that just keep getting taller while politicians fiddle ineffectually. But being out of the market is also scary, as interest rates on savings are pitiful. How are people supposed to grow their capital?

This dilemma was apparent when Standard & Poors’ downgrade of US treasuries prompted a headlong escape from stocks and a furious rally in the price of the very bonds that had just been demoted. This behaviour seems ludicrous if you believe the media’s characterization of such action as a “flight to safety.”

It’s more accurately seen as a temporary move to the sidelines, and it just happens that short-dated bonds are the default choice for that money. Perhaps it is the consummate liquidity, not the safety, of these instruments that makes them so attractive. But investors in bonds for the longer term should beware the ides of increasing interest rates, which will undoubtedly come to pass.

Though all stock markets were jacked around by volatility, the indexes did not all end up as flat as the S&P 500. The venerable Dow Jones gained 5.5 percent, helped by healthy dividend payers that were in demand among those hungering for income. The tech bellwether Nasdaq slipped by 1.8 percent, while the Russell 2000 clan of small caps was off by 4.2 percent.

In Europe, stocks struggled. France’s CAC 40 slimmed down by 17 percent and Germany’s DAX dropped 14.7 percent. Export-oriented Asian companies are very sensitive to weak global demand, as 2011 attests. The Hang Seng took a 20 percent dive, Shanghai was hammered by 21.7 percent, while Bombay bombed by 24.6 percent.

Japan’s long-suffering Nikkei was unable to absorb the fallout of the devastating earthquake and tsunamis; it sank by another 17.3 percent. Japanese stocks are now at levels not seen since 1982!

Evidently, the Caracas stock exchange in Venezuela, up 80.8 percent, was the place to be.

Here at home, the S&P/TSX was not a happy camper, losing 11.1 percent, while the little fellas on the Venture are decidedly littler after a 35.1 percent spanking. The loonie danced over parity, but ultimately slipped to 98.33 cents, slimmer by 2.2 percent.

Gold once again proved to be an excellent alternative, closing out at $1,566 an ounce for an 11.5 percent gain, awfully good for an unproductive asset. However, the metal is well below its all-time high, prompting some to make hamburger out of the dead bull. This would be more credible if central banks were not regularly coming up with new schemes to boost money supply without resorting to QE3.

The President’s Portfolio shrugged off a difficult environment with a spirited gain of 14.4 percent. This trumped Canadian and US market results by a huge margin. The Canuck side of the ledger had some pleasant surprises, including a resurgent Intertape; harvested fat profits with Richmont Mines; and capped off one our biggest comebacks ever with a buyout of Zarlink.

The US section was spottier, but there was a welcome takeover of Novell, the cashing in of the remainder of the chips in Franklin Covey and the breakup of Motorola, which did release some shareholder value, as advertised.

The 10- and 15-year returns both cooled off, losing the benefit of 1996 and 2001, which were mighty fine years. Coincidentally, both time periods now sport identical annualized 15.3 percent records.

Unfortunately, the Vice-President’s Portfolio was unable to evade the headwinds and backtracked by 2.7 percent. Overall, the portfolio did well over the first half of the year before the wheels fell off in August.

International Datacasting, one of the stars of 2010, contrived to lose over a third of its value. Fairborne was rocked by the collapse in the price of natural gas. Sun Bancorp’s turnaround went askew. And Wabash turned in an unexpectedly weak quarter. A few Steady Eddies like Jean Coutu, RioCan and Telecom New Zealand helped mitigate the damage.

The VPP was valued at $312,169 on December 31, a gain of 21.5 percent since its inception on January 22, 2010, which works out to annualized return of 10.5 percent.