Private Equity Giant, Thomas A. Carver, Warns, Today More Than Ever, You Need a Bulletproof Investing Strategy

While the stock market plunged over the last month amidst low consumer confidence, surging inflation, declining GDP, and talk of a tariff war, most experts agree that the US economy is on shaky ground.

Americans across the nation watched in horror as their IRAs have been decimated, with no end in sight. Some cite the impact growing conflict around the world will have on energy prices, while others focus on the effects tariffs will have on free trade, the decline in consumer spending driven by layoffs and inflation, and even the impact of AI on the labor market. But they all agree on one thing: Our economy will face significant challenges in the foreseeable future, and we all need to be prepared to tighten our belts, maximize revenue, and refine our investing strategies.

The average American today is being strangled financially, with stagnant wages squeezing them on one side and rising costs on the other. A recent Wall Street Journal article revealed that the top 10% of Americans, which includes households making $250,000 per year or more, account for about half of all consumer spending. Essentially, the rich are keeping the country afloat because the economy simply doesn’t work for the vast majority of Americans today, as explained in a recent article by noted economic expert Dr. David Phelps.

This, along with virtually every other critical economic metric, has put a tremendous strain on the markets, causing not only declines but also severe volatility that puts our investments at risk.

That doesn’t mean we should stop investing, though, says private equity boss Thomas Carver, who runs the boutique PE firm Harren Equity Partners, with just shy of $800 million in assets under management.

Carver explains that significant growth in wealth is most often achieved during periods of economic decline because as underperforming assets are choked out, it creates an opportunity for stronger and better-organized operators to purchase those assets and turn them around. While the wealth initial impact is first felt in real estate and companies, that quickly ripples out into all asset types, and even the broader economy as a whole.

For example, when a struggling company is purchased, whether by an individual or private equity firm, the first thing they’ll do is cut unnecessary costs, streamline processes, and leverage relationships to turn that company around and make it profitable again. This leads to job growth, both directly from that company as well as from the other contractors, vendors, and suppliers it works with. And if it’s a public company, this also drives appreciation in its stock price, creating capital appreciation for investors. When this happens at scale, it drives growth throughout the entire market, meaning your investment portfolio increases in value as well.

So, it’s an opportunity for individuals to reap tremendous rewards even if they’re just investing through an IRA or similar types of accounts.

The key, Carver explains, is to only invest in assets you truly understand. For example, it’s not enough to know how the stock market works. You also need a deep understanding of the industries you’re investing in as well so that you can evaluate their strengths and weaknesses and identify opportunities.

“You can’t be a ‘drive by’ investor, and what I mean by that is you have to really understand whatever you’re investing in, and that requires knowledge on a visceral level. It also requires a deep interest, bordering on passion, because this is exactly what it takes to dig deep enough into an industry to see what others miss — that’s how you spot the opportunities and red flags. You have to love what you’re doing to pour through the mountains of research, annual reports, industry trends, and other data needed to make the best decisions for your goals. If you don’t love it, you just won’t do it,” he explained.

He says understanding risk is equally important, especially in a declining economy, because of increased volatility.

Cash flow hides inefficient operations, but when the economy contracts, companies that can’t adapt quickly enough often find that their expenses outpace their revenue, sucking them into a quagmire that ensures collapse. And this has a ripple effect, because other companies that provide products and services to them rely on the revenue they provide, and when that dries up, they face a similar fate.

Avoiding this minefield requires both an understanding of the market, industry, and company, and an objective understanding of risk.

Most investors, Carver warns, especially lack the latter.

He explains that most people judge risk poorly. “Think about it like this, if you went to the roulette wheel in Las Vegas and bet $20,000, would that be riskier than betting $20? Most people would say yes, but mathematically speaking, the risk is exactly the same. The odds are the same. The only difference is what you stand to gain or lose, and that’s relative to your financial situation. This is where something called the coefficient of risk comes into play.”

This tracks with published reams of statistical data, including a study published by The Journal of Finance, explaining the psychology behind this phenomenon, saying investors may “rationally or irrationally believe their current losers will in the future outperform their current winners.”

In other words, they’ve convinced themselves that their investment decision wasn’t actually wrong, they just haven’t been proven right yet — although they’ll happily count their winning decisions right away. It’s a sense of delusion that is especially dangerous during a volatile economy and can quickly spiral out of control, decimating your portfolio in a very short period of time. Carver says investors need to be able to accurately gauge risk and truly know their own tolerance for risk because we’re going to have losses, and we need to be prepared for them and, more importantly, our perspective of and our reaction to them.

“You have to know how you’re going to perform under pressure. Will you step up and make it work or will you choke when you’re backed into a corner? Your answer to that tells you exactly how much risk you should take,” he explains.

Carver recounts a story about the risks he took in some of his first investments, where he leveraged his entire $25,000 signing bonus to host a ticketed party on a luxury yacht. That bet paid off in a big way, with him and each of his friends pocketing over $30,000 in profit by the end of the night.

On the surface, the risks were substantial. His own father even advised him against the plan, realizing that if anything went wrong, he would almost certainly face bankruptcy. And he almost did because over 75% of the tickets were sold the night of the event. If the weather hadn’t been beautiful that night, he could have been left holding a very expensive bag of tickets with nothing to show for his efforts.

But Carver had a different perspective. He was confident in his ability to sell enough tickets to turn a profit and already had over $200,000 in student loan debt, so he felt another $25,000 wouldn’t make a difference one way or another.

And on risk, he says, comes loss. It’s inevitable.

“Every bad investment I’ve ever made started off as a great investment,” he explained.

When we suffer a loss, we need to be prepared to learn from it and adapt quickly.

“If you’re going to fail, fail fast so you can course correct fast. Instead of sitting around hoping things change for the better, you need to either cut your losses and move on, or make the appropriate changes to turn things around. And with some investments, you can’t do anything but take your bruises and hopefully learn something from the experience. I like to say, ‘don’t stub your toe on the same piece of furniture twice,’ and what I mean by that is when you make a mistake, learn from it and use that knowledge to avoid making the same mistake again,” he said.

Whether it’s Thomas A. Carver investing in multimillion dollar companies, or people like you and I investing in our IRAs, the fundamentals are the same. We need to adapt to changing market conditions, and our economy is rapidly changing today, so we must adjust our strategies accordingly.