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Some of these are good, some are terrible. The rule about not using leverage is so bad that I can't take the rest of the article seriously. Anyone who really un

Some of these are good, some are terrible. The rule about not using leverage is so bad that I can't take the rest of the article seriously. Anyone who really understands the purpose of debt and how to utilize it has to be laughing at this. The very best way to make money is with other people's money - this is a very basic tenet of wealth building. I challenge anyone to find an example of a business or wealth empire that wasn't built with some level of leverage.

ghaff 3y ago
>The rule about not using leverage is so bad that I can't take the rest of the article seriously. In the context of a personal investment portfolio, I'd question there are many circumstances where borrowing money to buy stock or whatever is a good strategy. This is not about building a business empire. (One can reasonably debate paying down a low interest mortgage early vs. continuing to save in other ways.)
- PaulHoule 3y ago
  It makes me think of the "efficient frontier" idea that hedge funds are based on that make a case that proper use of leverage really can improve the risk/reward distribution of a portfolio but you can just as easily get into a trap where you juice a failing strategy by applying more leverage to cover up the fact it isn't working anymore, see the "Market Neutral" funds that blew each other up in the summer of 2007. Note Harry Browne ran as the libertarian candidate for US president more than once and is really famous for https://www.amazon.com/Permanent-Portfolio-Long-Term-Investment-Strategy/dp/1118288254 https://www.amazon.com/Permanent-Portfolio-Long-Term-Investm... In my mind it is quite similar to Diallo's "All Weather" strategy where inflation protected bonds play a role similar to gold in Browne's portfolio.
  - ghaff 3y ago
    Hedge funds, VCs, and so forth are also playing multiple games multiple times--so they can afford to play win some lose some so long as they don't lose too many and hit a few home runs. On the other hand, the person who took out a big HELOC to buy Yahoo stock in 1999 shortly before being laid off was making a bet that ended up being life-changing in a way they didn't intend it to be. (That's an extreme example but playing the averages both assumes that the average doesn't change and that they get enough rolls for the average to be a meaningful concept.)
compiler-guy 3y ago
99% of people need a safe and comfortable retirement, not a business or wealth empire. If you are looking to build an empire, sure take the high risk way. If you just want to provide for yourself and your loved ones, leverage as a method of investing is quite risky and counter to your goals.
sacado2 3y ago
These "rules" are for individuals, not for businesses or "wealth empires". I could be rephrased as "don't buy stocks on a margin to finance your retirement." (Not that I necessarily agree with him)
JacobAldridge 3y ago
I agree with you. Debt is a terrible master, but can be a wonderful servant and I wouldn’t be as financially successful as I am without leverage. And that’s not a wealth empire - just a regular family geared into real estate. Of course, the “ZIRP” zero interest rate environment that predominated the 10 years since this article was written has been a historical anomaly. Though perhaps part of a longer trend, investors must be cautious not to view the benefits of recent leverage as evidence of easy future gains. But if there was one thing that differentiates our financial position from our less-financially-free friends, it would be our comfort with debt as part of a well-developed investment strategy.
rocqua 3y ago
You might have missed the point of the rules. They are not about FIRE, or maximizing gains. They are about risk minimized investing. Effectively 'how to beat keeping all your money in a bank account, whilst also having even less risk than a bank account'. Debt is great for boosting returns, and the risk can be managed. But it remains risky. Certain strategies are less risky if you use debt. Those strategies have a risk that is astronomically above the risk tolerance these guidelines assume.

ghaff 3y ago

>The rule about not using leverage is so bad that I can't take the rest of the article seriously. In the context of a personal investment portfolio, I'd question there are many circumstances where borrowing money to buy stock or whatever is a good strategy. This is not about building a business empire. (One can reasonably debate paying down a low interest mortgage early vs. continuing to save in other ways.)

PaulHoule 3y ago
It makes me think of the "efficient frontier" idea that hedge funds are based on that make a case that proper use of leverage really can improve the risk/reward distribution of a portfolio but you can just as easily get into a trap where you juice a failing strategy by applying more leverage to cover up the fact it isn't working anymore, see the "Market Neutral" funds that blew each other up in the summer of 2007. Note Harry Browne ran as the libertarian candidate for US president more than once and is really famous for https://www.amazon.com/Permanent-Portfolio-Long-Term-Investment-Strategy/dp/1118288254 https://www.amazon.com/Permanent-Portfolio-Long-Term-Investm... In my mind it is quite similar to Diallo's "All Weather" strategy where inflation protected bonds play a role similar to gold in Browne's portfolio.
- ghaff 3y ago
  Hedge funds, VCs, and so forth are also playing multiple games multiple times--so they can afford to play win some lose some so long as they don't lose too many and hit a few home runs. On the other hand, the person who took out a big HELOC to buy Yahoo stock in 1999 shortly before being laid off was making a bet that ended up being life-changing in a way they didn't intend it to be. (That's an extreme example but playing the averages both assumes that the average doesn't change and that they get enough rolls for the average to be a meaningful concept.)

compiler-guy 3y ago

99% of people need a safe and comfortable retirement, not a business or wealth empire. If you are looking to build an empire, sure take the high risk way. If you just want to provide for yourself and your loved ones, leverage as a method of investing is quite risky and counter to your goals.

sacado2 3y ago

These "rules" are for individuals, not for businesses or "wealth empires". I could be rephrased as "don't buy stocks on a margin to finance your retirement." (Not that I necessarily agree with him)

JacobAldridge 3y ago

I agree with you. Debt is a terrible master, but can be a wonderful servant and I wouldn’t be as financially successful as I am without leverage. And that’s not a wealth empire - just a regular family geared into real estate. Of course, the “ZIRP” zero interest rate environment that predominated the 10 years since this article was written has been a historical anomaly. Though perhaps part of a longer trend, investors must be cautious not to view the benefits of recent leverage as evidence of easy future gains. But if there was one thing that differentiates our financial position from our less-financially-free friends, it would be our comfort with debt as part of a well-developed investment strategy.

rocqua 3y ago

You might have missed the point of the rules. They are not about FIRE, or maximizing gains. They are about risk minimized investing. Effectively 'how to beat keeping all your money in a bank account, whilst also having even less risk than a bank account'. Debt is great for boosting returns, and the risk can be managed. But it remains risky. Certain strategies are less risky if you use debt. Those strategies have a risk that is astronomically above the risk tolerance these guidelines assume.