The Decade That Taught Us to Take Too Much Risk

What if some of what we thought was investment skill was actually a period of unusual economic tailwinds?

That’s a question I’ve thought about for a while and brought up in conversations with others who have multiple-cycle experience.

For roughly a decade, from about 2012 through 2022, business owners and investors were rewarded for a particular set of behaviors:

Borrow.

Leverage.

Expand.

Scale.

Buy assets.

Keep your money working.

Take more risk to generate more return.

And for a while, it worked. Dental practices grew and sellers received increasingly high multiples. Real estate appreciated. Stocks appreciated. Private equity flourished. Credit was plentiful. Capital was cheap.

The lessons from that decade?

Bigger is better.

More is the goal.

Conservatism loses.

But I’m increasingly convinced that these are the wrong lessons.

Because 2012–2022 wasn’t normal.

It was atypical.

An Extraordinary Decade Can Create Ordinary Expectations

After the 2008 financial crisis, the Federal Reserve drove interest rates toward zero and began massive quantitative easing.

Then came COVID.

The Fed’s balance sheet ultimately approached $9 trillion while Congress simultaneously injected trillions more into the economy through fiscal stimulus.

There were legitimate reasons for emergency intervention in both crises.

But there were also consequences.

Cheap money didn’t just stimulate economic activity.

It changed behavior.

It pushed investors farther out on the risk curve.

It made leverage look safer.

It supported higher asset valuations.

It rewarded expansion.

And it conditioned an entire generation of business owners and investors to believe that double-digit returns, rapidly appreciating assets and cheap capital were somehow normal.

They weren’t.

It’s recency bias on a massive scale.

We naturally assume that what worked over the last decade will continue to work over the next one.

But what happens when the environment changes?

Yesterday’s Return May Require Today’s Unacceptable Risk

Interest rates are higher.

Inflation has found strong footing.

Debt and the cost of debt are much greater.

Demographics are changing in a negative trend.

Globalization has declined dramatically.

Geopolitical instability is increasing.

And government debt service is becoming a much larger share of the federal budget.

This isn’t a partisan observation. Republicans and Democrats have both participated in building this house of cards.

Eventually, arithmetic wins.

• We have Social Security.
• Medicare.
• Defense.
• Interest on the debt.

And everything else we’ve promised ourselves. Something eventually has to give.

Taxes?

Reduced benefits?

Means testing?

Higher retirement ages?

Persistent inflation?

Financial repression?

More money creation?

Probably some combination of all of the above. And don’t assume government intervention is going away. Quite the opposite.

When the next major recession, banking crisis, credit event or market disruption arrives, the political pressure will force Washington and the Federal Reserve to intervene again.

We’ve conditioned ourselves to expect it.

The next intervention could create another period of significant asset inflation.

But the starting point is very different this time.

• More debt.
• Higher interest expense.
• Larger entitlement obligations.
• Less favorable demographics.
• Greater geopolitical instability.

And considerably less room for error.

That’s why I think investors need to be very careful about asking:

“Where can I still get the returns I used to get?”

That’s the wrong question.

Because chasing yesterday’s return in today’s environment may require taking substantially more risk.

The better question is:

“What return is today’s environment willing to give me at a level of risk I can afford?”

But What If You Have Changed Too?

There is another kind of recency bias that may be even easier to miss.

We can continue investing as though we are still the person we were 15 or 20 years ago.

• Same appetite for growth.
• Same willingness to leverage.
• Same desire to compound.
• Same instinct to maximize.

But should we?

There is a natural progression to the financial life of a successful business owner:

BUILD → COMPOUND → HARVEST → PRESERVE → STEWARD

At 40, sure, you’re an estate builder. Growth is the norm.

At 50, you’re in the compounding period of life.

But at 60 or 70, the objective is more likely shifting toward preservation, greater optionality and stewardship.

And that’s where many successful people get caught.

They become very good at playing one game.

Then they keep playing it long after the objective has changed.

Creating Wealth and Stewarding Wealth Are Not the Same Job

Creating wealth and stewarding wealth are not the same job.

The skills required to create wealth often include concentration, leverage, risk-taking and aggressive reinvestment.

Those may be entirely appropriate during the building years.

But once you have accumulated enough, the question changes.

If you already possess enough capital to fund the life you want, why continue exposing something you need to risks you don’t need to take in pursuit of returns you don’t need?

That does not mean becoming fearful.

It does not mean hiding everything in cash.

It does not mean refusing opportunity.

It means recognizing that the definition of a successful investment may change.

Earlier in life, the primary question may have been:

How much can this grow?

Later, better questions might be:

What does this allow me to preserve?

What income does it reliably produce?

How much control do I retain?

What role does this capital play in the life I’m actually trying to live?

These become more relevant questions.

“How Much Is Enough?” Is an Investment Question

That’s where “How much is enough?” becomes much more than a philosophical question.

It becomes an investment question.

Because once you know what enough looks like, it changes the way you think about risk.

Without a definition of enough, there is no natural stopping point.

Every additional dollar creates a desire for the next dollar.

Every successful outcome moves the finish line farther away.

That can continue indefinitely.

But wealth without an understanding of enough can become another form of captivity.

The goal was never simply to accumulate the largest pile.

The goal was to create choices.

To own your time.

To protect the people you care about.

To be able to stay engaged in business because you want to, not because you have to.

That is what capital is for.

The Game Can Change Before We Do

The Cultural Trap is not believing that markets will fall.

The trap is continuing to play yesterday’s game because it is the only game we have learned to play.

Perhaps you built wealth by borrowing, expanding, concentrating, taking intelligent risks and relentlessly pushing capital toward growth.

Those skills may have served you extraordinarily well.

But freedom sometimes requires learning a different skill:

Knowing when enough has become enough.

Because the objective isn’t to die with the highest return on investment.

It isn’t to win some imaginary contest for net worth.

It is to make your capital serve the life you are trying to live.

And eventually, the people and purposes you will leave behind.

The biggest danger may not be that the world has changed.

It may be that our thinking hasn’t changed with it.