Making Your Investments Safe

by Harry Browne

July 11, 2002

Relax, investors, help is on the way!

President Bush is going to make the markets safe for you by holding corporate America accountable.

And he'll do this in his spare time — when he's not busy ridding the world of evil-doers.

Unfortunately, he doesn't have much of a track record for keeping promises or promoting honesty.

For example, in his Tuesday speech he said, "I'm asking Congress to join me to promote free trade." But he only recently laid down his pen after okaying a 40% tariff on foreign steel.

He also said, "I will insist on, and if need be enforce, discipline in federal spending so we can meet our national priorities without undermining our economy." This after he's been promoting increased government spending for foreign aid, education, health care, farm subsidies, and virtually every segment of the budget.

On Tuesday he said he wants a "stronger SEC" with 100 new enforcement officers and a $100 million more money to spend. It was only a few months ago he said the SEC budget should be frozen.

And the President's explanations for his own insider trading with Harken Energy ("I still haven't figured it out completely") don't inspire much confidence that the current scandal du jour is anything but a political issue.

Meanwhile, on Capitol Hill Congressmen were having fun brow-beating corporate executives. If Senator Joe McCarthy had used the same tactics on Communists, the press would have screamed bloody murder. But it's okay to intimidate, interrupt, and condemn men who have been found guilty of no crimes as yet.

What's Wrong with This Picture?

Why should we be skeptical that the government will make your investments safer?

First, President Bush and the politicians are the same folks who are peddling fraudulent information about the federal budget. They say the government had budget surpluses from 1998 through 2001 — even though the federal debt rose to $5.9 trillion from $5.4 trillion during those years.

They used "creative accounting" — stealing money from Social Security reserves — even as they pledged to keep Social Security safe.

So how can they condemn the accounting practices of corporate executives?

Second, the people who promise to make everything okay are politically motivated. That's why the Justice Department indicted Arthur Andersen, but not Enron.

Third, their investigations will lead to more laws and regulations over the investment markets. But we already have thousands of federal securities laws — and a Securities & Exchange Commission that spends a half-billion dollars every year "protecting" us from investment fraud. Why would new laws provide any more protection than the old ones?

The Point

And that brings me to the point.

The government can't protect your investments any more than it can win a War on Drugs or a War on Poverty. Government doesn't deliver on any promise, and you should never rely on it to protect you.

Too many investors have the entitlement mentality of welfare recipients . . . 

  • "I have a right to a ‘level playing field' when I invest."

  • "I have a right to know that insiders don't get to the market ahead of me."

  • "I have a right to be protected from misleading financial statements and overly optimistic earnings estimates."

In truth, you have no more right to these things than you have a right to earn $200,000 a year — or a right to be loved — or a right to live at the expense of anyone else.

We live in an uncertain world. If you're going to invest or speculate, you face numerous risks. No one can eliminate those risks, either by superior knowledge or by using the force of government.

No one owes you anything.

If you lose money — for whatever reason — that's your problem. Don't go whining to the government when the risks cause problems.

You can wish that government would make you safe, but the truth is that it won't.


If you want to protect what you have, first accept that you live in an uncertain world.

No one can dispel uncertainty for you. No one can tell you reliably whether the market will go up or down tomorrow — or next week or next year.

No one can guarantee you safety, honesty, or any kind of return.

Although you can't overcome uncertainty, you can deal with it — just as you deal with it in your working and personal lives. You can function, you can make decisions, you can succeed — without predicting the future or relying on the government.

If your goal is to safeguard what you've earned, you can set up a portfolio that's sufficiently diversified — beyond just the stock market — to protect you no matter what comes.

Then you can relax and turn your attention to the things you do best and enjoy — knowing that no event (such as dishonesty or a market crash) will be disastrous for you.


---- Reactions from Readers ----

"I agree with everything in your article up until you sum it up by saying 'If you lose money — for whatever reason — it's your problem. . . don't go whining to the government. . .'

"If someone defrauds you, you have a right to sue him, and see that he's prosecuted — that is the crux of the current WorldCom and Enron scandals. I'm sure you'd do the same if someone defrauded you. Stealing and taking risks are not the same thing. As an alleged investment guru, you shouldn't make such a mindless statement."

I'm sorry you don't like my mindless statements.

If you choose to sue someone, you might be in court for several years, your case may be heard by a judge who has no concept of the constitution or common law, and you might end up simply worse off than when you started the suit. Maybe that isn't the way life is supposed to be, but that's the way life is.

If you choose to play that lottery, or to rely on the government to keep wrong-doers in line, that's your business. But I choose to recognize the risks in advance and protect myself from dishonesty and other possible disasters through diversification, so that no single event can be disastrous for me.

And no, contrary to your statement, I wouldn't "do the same if someone defrauded" me.


"The one thing I could say is that you're right. It is our problem if we invest and our investments tank.

"However, what is your solution for things like what did happen at Enron, where the workers were not allowed to sell their shares, and the execs did sell. The workers there lost as much as $700,000 while the CEO a------s ran away with millions of dollars from their stockholdings.

"Look, if I personally chose to put money into Enron and it tanks like it did and I lose my money, then it's my problem. However these workers were forced to buy Enron stock, and then they weren't allowed to sell it when the stock was going down. Explain that.

"As for Arthur Andersen, they've already been proven to have cooked the books for at least 2 maybe 3, maybe more companies. They tried to get Enron indicted, but everybody pleaded the fifth amendment, so what can you do?"

I understand your position. Workers are put in a vulnerable position because of the income tax. If there were no income tax, there would be no need for employers to shield employee's retirement money from taxes. Workers could set up their own plans (perhaps employers would help arrange them and make the deductions for them), with no concern about the tax consequences. They could put their money in anything they want.

Employees would be reluctant to go to work for a firm that required it to put a percentage of their earnings into company stock — so long as any alternatives existed.

Similar problems exist in health care and other areas. The tax laws become, intentionally or inadvertently, incentives to specific kinds of action that may not be in the best interest of all parties concerned.

It may seem like an impossible task to repeal the income tax. But until that happens, every "solution" to problems like the one you posed will involve more government, rather than less, and make life more complicated, more unjust, and more dependent upon the good intentions of politicians.

(Harry Browne's investment work these days is limited to one-time telephone consultations, in which he helps you set up a portfolio that insulates you from market crashes and other untoward events. For more information, click here.)