Think Bigger

LESSON 34Spend Less

I founded Tiger 21 when equities were flying so high that reputable financial writers were forecasting a 40,000 Dow. But within two years, the party was over thanks to the dot-com crash and the struggle to understand the broader implications of 9/11. No sooner had the markets revived when the credit markets froze, giving us the 2007–2008 financial crisis and then the Great Recession, which spread pain throughout the economy, bottom to top. Wealthy Americans lost 20 to 30 percent of their net worth. Many lost far more. Many middle-class Americans took an even bigger step backward, and many have yet to recover.

Every time you think you’ve got a grasp of what’s going on in the markets, the investment climate changes.

Knowing this is true, how can a mediocre investor protect his wealth? In the aftermath of the 2008 crisis, members of Tiger 21 embraced a variety of strategies. We reduced equity exposure, shortened the duration (the weighted average life) of fixed-income portfolios to protect against rising interest rates, raised cash levels, and even purchased some gold. Taking risk out of portfolios left many with materially more conservative investments, reducing income even more. A few chased higher yields in the beaten-down equities markets. Others dared to dip into principal to fund living expenses, hoping the downturn was temporary.

It wasn’t temporary, of course, and the Federal Reserve Bank’s effort to stimulate growth by cutting its interest rate to ...