Fail-Safe Investing with Harry Browne

For anyone who has read any of my investment advice, you probably know that I advocate setting up a permanent portfolio similar to what is described by Harry Browne in the book Fail-Safe Investing.

Harry Browne passed away in 2006.  I was lucky enough to meet him in person before he left us.  He was very influential for me in both political (libertarian) philosophy and investment philosophy.

While the best part of his book Fail-Safe Investing is the description of the permanent portfolio, I would like to emphasize that there are other key basic points in this book that should not be overlooked.  Some of them are seemingly obvious, yet it is surprising how many people violate these simple things.

He breaks the book into 2 parts.  The first part is “The 17 Simple Rules of Financial Safety”.  The second part is “More about the Rules”, in which he goes more into depth.

Here are just a few of the rules, although they are all important in some way.

  • Rule #1: Build Your Wealth upon Your Career
  • Rule #3: Recognize the Difference between Investing and Speculating
  • Rule #4: Beware of Fortune Tellers
  • Rule #9: Do Only What You Understand
  • Rule #17: Whenever You’re in Doubt, Err on the Side of Safety

His most important, of course, is Rule #11: Build a Bulletproof Portfolio for Protection.  This is where he describes the permanent portfolio and the importance of diversification to protect your investments in any economic environment.

Browne stresses throughout the book that you should not invest in anything that you don’t understand, and that you should only speculate with money you can afford to lose.  He also makes the point – which most investors don’t want to hear – that most of your wealth will be gained from your career.  You probably aren’t going to get rich by investing.

In Rule #4: Beware of Fortune Tellers, Browne is essentially invoking Austrian economics, even though he doesn’t call it this.  He is recognizing that economics is based on human action.  Human action will determine which investments go up and down.  It is the decisions of millions of people every day that drive the markets.

As Browne states in his book, “The beginning of investment wisdom is the realization that we live in an uncertain world – and that no one can eliminate the uncertainty for you.”

This is particularly interesting because Browne first gained notoriety by correctly predicting the devaluation of the dollar in the early 1970s.  While he said that he basically got lucky in this prediction, I think he did have a good understanding of central banking and the financial markets, and his prediction was nothing more than a good prediction of human action – in this case, that politicians would continue to spend money and run up deficits.  There was no way the U.S. could continue to keep the dollar on an international gold standard.

While Harry Browne was an optimist in general – he said that human nature was on the side of liberty – he perhaps underestimated the powerful arguments to be made against central banking.  He did not think that talking about the Federal Reserve to non-libertarians was a good way to persuade them towards a more libertarian position.  Ron Paul showed otherwise in 2007 when his opposition to the Fed was one of his main positions that he emphasized (probably second to foreign policy).  Ron Paul ended up going to rallies with chants of “End the Fed.”

When Harry Browne made his predictions against the U.S. dollar, he wrote a book titled How You Can Profit From the Coming Devaluation. The second half of the book may not be timely, but it is still an interesting read.  The first 70 pages are just as relevant today as they were then.  It is a great explanation of money.  If only these 70 pages were read by high school students.

Browne went on to write several investment books, as well as a couple of libertarian books, and a self-help book.  In terms of investment books, I would still start with Fail-Safe Investing.  They are simple but important rules, and it describes the permanent portfolio that I believe is so important for wealth preservation.

4 thoughts on “Fail-Safe Investing with Harry Browne”

  1. Do you have your Permanent Portfolio in ETFs or do you hold the individual securities?

  2. It is more mutual funds. I do not actually buy U.S. government bonds directly. They are through funds (either ETFs or mutual funds). I also invest in PRPFX, which somewhat mimics the permanent portfolio. As I have stated before, it does not do a perfect job of imitating the portfolio, but it is close enough for the convenience.

  3. When I discuss the PP extensively, I am usually quick to point out that the bond portion makes me a bit uneasy. Still, I think it is probably the best hedge against deflation and/or depression because so many others see it as a safe investment. Why are you saying that 50% is allocated to government bonds? Are you counting the “cash” portion too? I don’t know that I would categorize a money market fund in the same boat as government bonds.

    I do not oppose investing in government bonds on moral grounds because I think it is mostly irrelevant in terms of what the government is going to do. Sure, if everyone stopped buying government bonds, then it might eventually stop some wars. But if everyone (or even half) started to strongly oppose war on moral grounds, this would also stop war.

    In terms of investing, I have also offered alternatives to the bond portion. While I think you should have some bonds as protection against recession/ depression, there are other alternatives to hedge against deflation. The most obvious one is to pay down debt. If you have a home mortgage, you can pay down the principal, and this is similar to hedging against deflation and low interest rates.

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