Frisco’s Own Investment Philosopher

We all have our passions — that one topic you could talk about for hours without realizing how much time has passed. The subject your friends might avoid sometimes because they know you will dominate the conversation. For some, it is photography. For others, it is football. And for others, it is something else entirely. For Frisco resident Mike Lawson, his passion is long-term investment strategies — specifically one called the “permanent portfolio,” created by Harry Browne.

Mr. Lawson and his wife, Crystal, are high school sweethearts from DeSoto, Texas. They have three children, a daughter who is a senior in high school, a son in eighth grade and a son in fourth grade. Mr. Lawson says about Frisco, “I think you know you are in the right place, not because you are always happy there, but because you have a hard time visualizing yourself anywhere else.” So, how did this family man and retirement plan compliance attorney with degrees from Southern Methodist University and the University of Texas, who enjoys watching the Dallas Cowboys, become an author and permanent portfolio expert?

Mr. Lawson, a Frisco resident since 2001, was a regular contributor to a few different investment forums. He and Craig Rowland (his book’s co-author, located in Oregon) were making similar points about the permanent portfolio and it led them down an interesting path. “They were enjoyable discussions. Apparently, there was a guy who works for John Wiley & Sons, the publisher, and he found the way and style in which we dealt with arguments, how we kept everything calm and cool and never got emotional, interesting. He asked if we had thought about writing a book about the subject,” Mr. Lawson says. “Of course, I had thought about writing a book, but writing a book and thinking about it are two very different things.”

The path worked out well, as the publisher showed them how to put their ideas together, how to maneuver the publishing process and, in 2012, Mr. Lawson and his co-author, Mr. Rowland, found themselves with a published book called “The Permanent Portfolio.” Mr. Lawson says they were just two guys who had interests in several things, but this particular topic got its hooks into them both and they enjoyed testing how robust the theory was and how much of a hidden gem it really could be. They both believe Harry Browne was an interesting person — an author, economist and even Libertarian presidential candidate. 

“Unlike most investment strategies, the permanent portfolio begins from a more philosophical starting point. Human nature is such that we always get ahead of ourselves in terms of our optimism, our ability to keep future promises and commitments and the degree to which the reality that shows up tomorrow is close to what was in our heads today. And how would you build an investment strategy from that perspective?” Mr. Lawson says. He says that taking such a point of view encourages you to look much more widely than you would otherwise. 

He adds, “It is easy to ridicule this kind of philosophy when you go through years of prosperity.” Mr. Lawson reminds us that we have plenty of history to look at where the financial markets have had their share of struggles. Even beyond our own financial markets in the U.S., there are several examples of groups having their lives change completely almost overnight — from the middle class in Cuba in the 1950s to those living in South Africa in the 1980s and even in Lebanon, more recently. Drastic change can happen quickly. “People often have a certain vision of the future and they tend to arrange their lives today around that idea. It is often fundamentally pessimistic or fundamentally optimistic,” says Mr. Lawson. He also says those ideas are all in our heads. We tend to lock ourselves into an idea and the permanent portfolio works to truly prepare us for whatever the future might bring — good or bad.

Mr. Lawson says the investment strategy had several opportunities to test itself between the mid 1970s, when it first appeared, up to 2008, with inflation adjusted returns of 4-5 percent. It is important to note that inflation adjusted returns are more difficult to consistently deliver. The government money management goal is to always have some sort of positive inflation. An example Mr. Lawson used was a hypothetical year where your investment portfolio has a return of 12 percent. If inflation was 11 percent, then you are only coming out ahead by one percent.

In 2008, the permanent portfolio faced its first test of true deflationary pressures — where prices were being driven down because most people were not spending. For the first time in recent history, most people were focused more on paying down debt and figuring out how to delay major purchases. Home foreclosures were on the rise and those who were able to keep paying their mortgages saw their home values drop dramatically. Mr. Lawson thought it was a good opportunity to truly test how the permanent portfolio investment philosophy would continue to provide returns.

The portfolio tells the investors to put 25 percent of their investments in long-term treasury bills, 25 percent in gold, 25 percent in the stock market and 25 percent in short-term treasury bills (these can be considered similar to cash). In simple terms, when one of those assets gets above or below a certain level, you rebalance everything to get back to that 25 percent allocation across the board. It helps manage market risk and personal fears by creating a systematic plan that takes emotion out of investing. Mr. Lawson adds, “You let your winners run long enough to bank good gains, and when something has a huge decline in value, you use that as an opportunity to buy more.”

At the end of 2008, where many investment portfolios were happy to minimize losses, Mr. Lawson’s portfolio showed a small gain. “This is the best test this strategy will ever get in our lifetimes — to live through a financial crisis, as terrifying as it might be, it is incredibly instructive. The next time it happens, the people who are old enough to remember 2008, will know they have seen this before. They have seen the fear and the type of behavior it leads to,” Mr. Lawson adds.

In the bigger picture, Mr. Lawson believes the permanent portfolio strategy can go beyond investing alone to include risk management, glitches in our thinking and injecting humility into our thought processes. “Our hope is that the person could read the book, have no interest in the strategy and still find it very valuable,” Mr. Lawson says. “It was important to write a book a person might actually want to read.”

The book has been available for over five years and still sells well. The reviews on Amazon are largely positive. “Experience is a marvelous thing and you hope your experience in life keeps up with the decline in your other abilities. Yes, I am not as fast as I used to be, but my knowledge and canniness are still strong,” Mr. Lawson jokes. You do not know when the next tornado will happen, but you can build a storm shelter to be prepared.

So, what can you expect to see from our neighbor Mr. Lawson in the future? Another book about another financial strategy? One can only imagine what this Frisco resident will help the community discover next!

Christi Redfearn is a wife, mom and Aggie in search of that perfect lap time in her weekend race car.