Living above your means eventually catches up with everyone ... even Ivy League sophisticates

If there's one thing we've learned during the past two years, it may be that average investors usually make mistakes on an average scale while savvy big-time investors make mistakes on a big-time scale. Even the brilliant minds at Harvard, it appears:

Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded, and the university faces the worst financial crisis in its 373-year history. Could the same lethal mix of uncurbed expansion, colossal debt, arrogance, and mismanagement that ravaged Wall Street bring down America's most famous university?...

The recession has been hard on most Americans. We know that. At Harvard, however, adjusting to the end of the gilded age, the champagne age, is proving especially wrenching: the university's endowment has collapsed, donations are down, budgets are overstretched. With so many enormous fixed costs - and with much of its endowment restricted by the narrowly defined wishes of donors - there's almost no room left to maneuver....

I walked with [Michael Smith, dean of the Faculty of Arts and Sciences] from the meeting to his car. How did the university get into this mess? I asked as we cut across Harvard Yard. Smith stopped. "First of all," he remarked, reinforcing what I already knew, "the endowment growth did not keep up with the expenses. We hired faculty faster than we really should have We put up buildings based on debt financings - not fund-raising. And we decided the right thing to do was this financial-aid package, even though, again, we didn't have new finances behind it to actually do it." [More...]

Note that the problem is a familiar one... spending money they didn't have. And Harvard is one of the prime training grounds for our leaders in Washington... where they continue to spend money they don't have... with similarly poor results.

You don't need an Ivy League education to benefit from biblical common-sense principles. In fact, such an experience might actually be an impediment. So, take courage, average investors... it's more of a level playing field than you might think.

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Austin Pryor is the founder and publisher of the Sound Mind Investing newsletter and website. Visit www.soundmindinvesting.com to learn more.