As always, Jeremy Grantham’s quarterly investment letter(.pdf) is well worth reading, a good portion of it taking up the issue of how capitalism has failed us and another recounting GMO’s surprisingly good market calls over the years, but item number two in the section on investment advice was what grabbed my attention:

“Neither a lender nor a borrower be.” If you borrow to invest, it will interfere with your survivability. Unleveraged portfolios cannot be stopped out, leveraged portfolios can. Leverage reduces the investor’s critical asset: patience. (To digress, excessive borrowing has turned out to be an even bigger curse than Polonius could have known. It encourages financial aggressiveness, recklessness, and greed. It increases your returns over and over until, suddenly, it ruins you. For individuals, it allows you to have today what you really can’t afford until tomorrow. It has proven to be so seductive that individuals en masse have shown themselves incapable of resisting it, as if it were a drug. Governments also, from the Middle Ages onwards and especially now, it seems, have proven themselves equally incapable of resistance. Any sane society must recognize the lure of debt and pass laws accordingly. Interest payments must absolutely not be tax deductible or preferred in any way. Governments must apparently be treated like Polonius’s children and given limits. By law, cumulative government debt should be given a sensible limit of, say, 50% of GDP, with current transgressions given 10 or 20 years to be corrected.)

In Shakespeare’s Hamlet, it was Polonius who said, “Neither a borrower nor a lender be”, words of wisdom that seem to have gone out of fashion over the last thirty years or so but that now seem to be making a strong comeback.