Investing in the Age of Sovereign Defaults: How to Preserve your Wealth in the Coming Crisis

Chapter 7

Investment Survival in the Age of Defaults

Resolve not to be poor: whatever you have, spend less. Poverty is a great enemy to human happiness; it certainly destroys liberty, and it makes some virtues impracticable, and others extremely difficult.

—Samuel Johnson

Now comes the hard part—how to preserve your wealth in the coming crisis.

Caveat: If the Obama proposals to significantly increase taxes on dividends and capital gains go through, this would be a huge negative for the US and possibly all global markets.

I will start with a disclaimer. Cataclysmic events don’t happen often, and when they do most pundits are taken by surprise. I read lots of authors and get lots of newsletters on investing. I am continuously amazed at the certainty these authors have regarding the investing future, particularly since they don’t usually agree with one another and, looking back, their mistakes are plentiful. The “illusion of knowledge,” as historian Daniel Boorstin put it, is very dangerous. But it sells books.

Wall Street, on average, tends to be cautiously optimistic. Sell-side Wall Street economists, strategists, and analysts are not paid to be pessimists. If they are too optimistic and wrong, they are forgiven. If they are too pessimistic and wrong, they are fired.

OK. Here’s my version of a disclaimer. Investment forecasting can be hazardous to your fiscal health. But investors don’t have a choice. They must do it anyway. Buy and hold equity strategies for the US have worked ...