Harry Browne's Lessons

Back to investment advice.

When I was a swabbie in the U.S. Navy, I came across an author named Harry Browne. He had just published a book entitled "How I Found Freedom In An Unfree World" and I was entranced. I read it cover-to-cover in a San Diego bookstore and have remembered large chunks of it ever since.

Harry, an investment guru, candidate for President (Libertarian Party) and best-selling author, has now moved on to his reward, but the Browne educational plan lingers on. I give you truncated versions of sixteen of his pearls of wisdom below:

Rule #1: Your career provides your wealth.

You most likely will make far more money from your business or profession than from your investments. Only very rarely does someone make a large fortune from investments ...

Rule #2: Don't assume you can replace your wealth.

The fact that you earned what you have doesn't mean that you could earn it again if you lost it. Markets and opportunities change, technology changes, laws change. ... So treat what you have as though you could never earn it again. ...

Rule #3: Recognize the difference between investing and speculating.

When you invest, you accept the return the markets are paying investors in general. When you speculate, you attempt to beat that return. ... There's nothing wrong with speculating — provided you do it with money you can afford to lose ...

Rule #4: No one can predict the future.

Events in the investment markets result from the decisions of millions of different people. Investor advisors have no more ability to predict the future actions of human beings than psychics and fortune-tellers do ...

Rule #5: No one can move you in and out of investments consistently with precise and profitable timing.

You'll hear about many Wall Street wizards, but the investment advisor with the perfect record up to now most likely will lose his touch the moment you start acting on his advice. ...

Rule #6: No trading system will work as well in the future as it did in the past.

You'll come across many trading systems or indicators that seem always to have signaled correctly where your money should have been, but somehow the systems never come through when your money is on the line. ...

Rule #7: Don't use leverage.

When someone goes completely broke, it's almost always because he used borrowed money ...

Rule #8: Don't let anyone make your decisions.

Many people lost their fortunes because they gave someone (a financial advisor or attorney) the authority to make their decisions and handle their money.

Rule #9: Don't ever do anything you don't understand.

Don't undertake any investment, speculation, or investment program that you don't understand. If you do, you may later discover risks you weren't aware of. ...

Rule #10: Don't depend on any one investment, institution, or person for your safety.

Every investment has its time in the sun — and its moment of shame. ... We live in an uncertain world, and surprises are the norm. You shouldn't risk the chance that a single surprise will wipe out a large part of your holdings. ...

Rule #11: Create a bulletproof portfolio for protection.

For the money you need to take care of you for the rest of your life, set up a simple, balanced, diversified portfolio. ...

Rule #12: Speculate only with money you can afford to lose.

If you want to try to beat the market, set up a second — separate — portfolio with which you can speculate to your heart's content. But make sure this portfolio contains no more of your wealth than you can afford to lose. ...

Rule #13: Keep some assets outside the country in which you live.

Don't allow everything you own to be where your government can touch it. By having something outside the reach of your government, you'll be less vulnerable ...

Rule #14: Beware of tax-avoidance schemes.

Tax rates are still low enough in the U.S. that you might gain very little from the risk and effort of constructing elaborate tax shelters. And a great deal of money has been lost by people who hoped to beat the tax system. ...

Rule #15: Enjoy yourself with a budget for pleasure.

Your wealth is of no value if you can't enjoy it. But it's easy to spend too much while the money's flowing in. To enjoy your wealth, establish a budget of money that you can spend yearly without concern ....

Rule #16: Whenever you're in doubt about a course of action, it is always better to err on the side of safety.

If you pass up an opportunity to increase your fortune, another one will be along soon enough. But if you lose your life savings just once, you might never get a chance to replace it ....

Most of Mr. Browne's points of light seem self-evident, so it amazes me how many people (myself included) stray s far from them so much of the time.