Many gloom-and-doom investing books, like those mentioned in the previous post, offer advice that involves putting most of one’s eggs in a one-basket bet on a dire future. This lack of diversification can be hazardous.
As an antidote, consider Harry Browne -- one of the best writers in the genre, in my opinion. His early books, How You Can Profit from the Coming Devaluation (1970) and You Can Profit from a Monetary Crisis (1974) represent some of the best in terms of prescience and advice.
After his publishing success (both books were bestsellers), Browne moved on to writing an investment newsletter and more big-picture investing books. But this extended period of predicting and advising seemed to chasten him.
By the 1980s, his message had evolved to: “the best-kept secret in the investing world is the fact that almost nothing turns out as expected.” And it stayed that way up to his last investing book, Fail-Safe Investing: Lifelong Financial Security in 30 Minutes (2001).
Accordingly, one shouldn't should try to predict and bet on scenarios but instead set up a diversified portfolio capable of navigating all environments. His suggestion, the Permanent Portfolio, was comprised of equal weightings of stocks, bonds, gold, and cash. It would cover an investor in times of prosperity (stocks), inflation (gold), deflation (bonds), and recession (cash).
According to Harry Browne’s Web site, the Permanent Portfolio (calculated back to 1970) has had only four losing years over the past 35 years, the worse being a 6% decline in 1981. The average annual gain is close to 10%.
Not that speculation was necessarily bad. Browne suggested keeping a portion of one’s assets in a Variable Portfolio for this purpose. This would be the place for taking the risks that could result in of a big score.