Don't Trust Nobody

Harry Browne, in his book Fail Safe Investing, advises us as follows:

"We live in an uncertain world. Whenever you make a decision... You may make the best choice you can, but you know you can't control the actions of other people"

In this investment book, Browne lays out good arguments for his (25/25/25/25) plan of investing (see previous posts). Browne was an advisor to the Permanent Portfolio, a mutual fund that was established to further the (25/25/25/25) investment plan. Although Browne in one instance recommends that we trust no one, he then also advises us that his Permanent Portfolio would be a good investment option.

How ironic then that the Permanent Portfolio has been besieged by lawsuits and fraud allegations. The SEC investigated Terry Coxon, the former general partner of the Permanent Portfolio. Coxon absconded with between 1M and 3M of the fund's money. The litigation continued for many years, finally reaching an end in Coxon v. SEC, 137 Fed.Appx 975 (9th Cir 6/29/2005), when Coxon was finally ordered to repay $850,000.00 back to the Permanent Portfolio.

In other litigation filed in King County Superior Court (Layman v. The Permanent Portfolio Family of Funds, Inc.), the fund was accused of reneging on Warrants preferentially given to an insider. The fund settled this dispute and: "As a result of the Settlement, total net assets of the Fund's Permanent Portfolio were reduced by approximately $505,000.00" See Note 8 to Financial Statements 7/31/2006.

The lesson: as Browne originally said, don't trust anyone. Once you give you money to a fund manager, much is out of your control. How do you know there isn't fraud or mishandling of your funds? If you don't sit on your investment you need to rely on other humans who may be beset with that very dangerous of human emotions: Greed.

For those of us who have a hard time giving up control, there aren't many investment options left:

• Real Estate (with minimal or no debt) - either in the U.S. or outside thereof for diversification purposes,
  
• Precious Metals (under your own possession or control),
  
• Treasury Notes and Bonds purchased directly from the Federal Government without a middleman (treasurydirect.gov),
• Direct ownership of foreign currencies or ownership of foreign government debt obligations,
  
• Promissory Notes and Mortgages (with the investor as the lender).

Investments that still rely on third parties, but are probably relatively safe:

• CD's that are FDIC insured, and
  
• Index Mutual Funds which will only track the general market and charge a minimal advisor fee of less than .2%.

Not much else out there.

Tags: "Harry Browne", "Permanent Portfolio", "Gold", "Precious Metals", "Human Greed"