increase by less than the market expects, you win with an adjustable rate. If rates increase by more than the market expects, you lose. Thus, those who choose adjustable-rate mortgages put their wealth at risk by betting on interest rates. Furthermore, that bet is taken against professionals.

My friend Greg used to bet against professionals of a different sort. He loved poker and used to test himself by playing against card sharks in Las Vegas. Because he was playing against pros, Greg expected to lose. He judged his ability by how long he could stay in the game before going broke. After one extremely successful evening, a pro took Greg aside and said, Youre an excellent young player, but when you have a strong hand, your left jaw muscle tightens. It was no surprise that Greg usually lost against such competent adversaries.

Competing against poker professionals was a losing game for Greg. Because he expected to lose, he never played for large stakes. He certainly would never have bet his house against professionals. Those who take adjustable-rate mortgages are betting their houses (or at least a substantial chunk of their wealth) against professionals.

Adjustable-rate mortgages are tempting because the payments can be so low. One day, while we were sitting in the Jacuzzi of our condominium, my neighbor Alec told me that he was moving out of Cambridge to a big house that he had purchased in the suburbs of Boston. As always, I asked, fixed or adjustable mortgage? Alec responded adjustable. When I asked why an adjustable-rate mortgage, Alec replied, If we had a fixed-rate mortgage, we couldnt afford the purchase.

I would recommend precisely the opposite strategy. If an adjustable-rate mortgage is needed to make payments affordable, I suggest purchasing a less expensive property.

Make Your Money at Work; Live in Your Home

Real estate has been the path to riches in America. Housing prices have risen relentlessly for decades. Furthermore, the magic of leverage has

allowed people to make incredible rates of return. Millions of Americans have made the bulk of their wealth through real estate.

Unfortunately, the easy money has been made. The housing market is expensive and has a number of structural risks. The path ahead will be less rosy than the path behind. If we are lucky we can still have an expanding housing sector, albeit at a far more modest pace than in preceding decades. If we are unlucky, we may face persistently declining housing prices for some time.

Accordingly, I suggest that people return to Peters advice regarding housing. Buy a home that you plan to live in. Expect to make your money in the area where you are an expert.

I also suggest putting yourself into a position where you can withstand some housing market turmoil. Even if the more optimistic scenario unfolds, it is likely that there will be some severe shocks to the system. When such shocks occur, those with the strong financial hand will be in a position to scoop up some values. Those with the weak financial hand are likely to be shaken out of the market at the wrong time.

There is value in strength in many areas. I learned a variant of this lesson when I was living in Uganda. I rode my motorcycle to Queen Elizabeth Park in western Uganda. In the park, I met with John, a man who worked for the Jane Goodall Institute helping chimpanzees. When John learned that I had ridden my motorcycle through the game park he became quite concerned. Are you good with the bike? he asked. I replied that I had just learned to ride. He looked concerned. He said, There are three types of animals to fear as you drive out of the park, and I have specific advice for each type.

First, stand your ground against elephants. They are more likely to give a mock charge than a real charge-of course be prepared to ride away as fast as possible if the charge gets too close. Second, never stand your ground against the buffalo. They never give mock charges, and it is better to be trampled than gored.

Third, lions are the toughest. John became concerned at this point- the trouble with lions is that by the time you see them its too late. He

went on to say, never ever back down from a lion. Once they sense fear they are all over you. Furthermore, never turn your back on a lion-they dont like faces and when they eat people they tend to sit on the humans face. They pick on weak animals so when the road goes through thickets where the lions hide, go fast and be loud, act like a strong and powerful animal.

Act like a strong and powerful animal! I took Johns advice. Near every thicket I accelerated and drove the motorcycle at top speed. I also tried to keep the gear lower so that I could make more noise. I kept thinking, lions drag down the sick and old animals in the herd. Act like a powerful animal, and they will leave me alone. On the drive, I saw an elephant (I stood my ground and he walked away) and I outran a buffalo. I did not see any lions; if they saw me from inside the thickets, apparently they were impressed with my vigor.

My advice with housing is the same as Johns with lions. Be strong and powerful. Make sure that you can withstand some tough economic times. Those who can take the pain of a tough housing market put themselves in the position to profit from irrationality, not to become prey.

The Mean Markets and Lizard Brains advice with regard to housing is to do the opposite of what has worked-have a fixed-rate mortgage and own a smaller home than you plan to have in the future. Taking these steps is very hard because it requires overriding the lizard brain. For decades the best strategy has been to buy as much U.S. real estate as possible and ride the rocket ship to riches. Our backward-looking lizard brain prods us to do what has worked in the past. In order to position ourselves for trouble, however, we have to avoid the course of action that has worked for generations. Those who can accomplish this psychologically difficult task put themselves in a great position to profit.