Through a similar lucky event, I survived a bout of indebtedness some years ago. While I was a student getting my Ph.D., Progenics Pharmaceuticals-the company that I had helped start, and for which I had served as president and chief financial officer-prepared for its initial public offering (IPO). With this event, I would be able to sell my shares and switch from bicycle-riding student to millionaire.

Because I know that markets are fickle, I resolved not to count my chickens too soon. Or at least not to spend them. So my goal was to act as if I were still poor until the cash hit my bank account. This, of course, proved impossible. In almost every conceivable way my expenses crept up. I took cabs, bought extra appetizers at meals, and flew to New York instead of taking the train. These expenses added up to some thousands of dollars of debts. Not to worry, soon the money would roll in.

After some months of trying to sell the IPO without much interest, Progenics decided to abandon its public offering. I was left with my debts and stock that I could not sell. About a year later, and after some business successes, Progenics restarted the IPO process. Once again I resolved to remain frugal in the face of my impending wealth, and once again I failed. Fortunately, this time the company went public, and I was easily able to pay off my debts.

If productivity growth can continue at its abnormally high pace it may do for the country what Progenics IPO did for me. If we are all going to be much, much richer because of information technology, then it makes sense to spend some of our windfall in advance. The high levels of debt in our society, and even the high level of our trade deficit, can be seen as the logical pre-spending of our future wealth.

The negative alternative, however, is that productivity growth will recede toward historical averages. If so, then we may be stuck with the debts we have, and the attendant consequences. Therefore, high productivity growth appears to be necessary if we are to escape our debts.

With high enough productivity, financial assets can continue to prosper. This is possible even though stocks cannot outgrow the economy, interest rates cannot continue to decline, and the United States will stop

consuming more than we produce. Thus, productivity is the single fundamental indicator that I will watch most closely in coming years.

The risk of being a conservative investor (owning low-risk investments) is missing out on a productivity-led boom. If financial markets continue to climb, then the low-risk investing strategy will earn lower returns than a higher-risk strategy.

The Pain of Low-Risk Investments

A Harvard faculty colleague of mine ends his course on decision making by giving two bits of advice. First, if you smoke, quit. Second, try to be less envious. Of these two suggestions, quitting smoking might be the easier one. Those who shift to a lower risk strategy must face the possibility that the risky investments they sell will continue to soar.

Very few people succeed without setbacks. Early in the life of my biotech startup, Progenics, I met with Paul Tudor Jones II, a lead investor. He asked how things were going, and I responded fine. He was seated and I was standing up on the opposite side of his desk. Paul rose, walked to my side of the desk and sort of backed me up against the wall. He said, You must anticipate being pressed to your limits-and thats if you succeed.

Paul was prescient and along the way to Progenics success, we had to weather several crises, including twice almost going broke and missing payroll. I felt tremendous stress, particularly because we had hired scientists from around the world and some of them had young children. One of these near-bankruptcy episodes was so stressful that some of my hair stopped growing, and I had to receive cortisone shots to revive the follicles.

Similarly, a low-risk investing strategy is likely to be stressful. One has to anticipate being pressed to ones limit. With near certainty, there will be times when everything appears rosy. At such times, our tendency to be envious will make us want to jump on the risk bandwagon. Such

emotional points, we have learned, are likely to be terrible moments to change strategy.

If productivity stays significantly above historical levels, and financial risk continues to be rewarded, we will all gain. Even those of us who have a conservative financial plan. The benefits we will receive in a rosy world are direct and indirect. Most important, our opportunities will be vastly expanded, wages will rise, and the assets we own will increase in value.

In addition, even conservative investors will gain from national prosperity. Current projections show that the retirement of the baby boomers will put serious pressure on the U.S. budget. The annual budget deficit that currently stands at half a trillion dollars could soar to several trillion. In such an environment, it is inevitable that taxes will rise and benefits such as social security will fall.

Productivity and prosperity can save us from the baby boom retirement disaster. If they do, our taxes will be lower, our government benefits higher, and our opportunities far greater. Thus, even those who own no risky assets will earn a handsome return if the financial markets continue to rise.

Unfortunately, envy seems to be an integral part of human nature. In fact, the tenth commandment says, You shall not covet your neighbors house; you shall not covet your neighbors wife, or his manservant, or his maidservant, or his ox, or his ass, or anything that is your neighbors. The need to include this prohibition in the Bible reinforces the idea that envy and covetousness are part of human nature.

One technique to suppress human urges including envy is to construct a frame, or a way of viewing investments. In this manner, I suggest viewing lower-risk investments as insurance. No one is unhappy when a car insurance policy is not used. We dont get mad if we pay money and then get through the year without an accident.

If we take out insurance in the form of a low-risk investment strategy we should similarly rejoice when that insurance is not used. Thus, we should think of our low-risk investments as a guarantee against an