Legendary investor Charlie Munger claimed that if he and Warren Buffett had used leverage, or borrowed funds, to purchase companies and common stocks, the value of Berkshire Hathaway, the conglomerate they created over the previous 50 years, would have doubled.
Just one month shy of turning 100, Munger, the vice chairman of Berkshire Hathaway, emphasised that he and Buffett hardly ever utilised this typical Wall Street tactic since they constantly prioritised their shareholders.
It’s possible that Berkshire’s current value may be doubled. And there would have been very little additional risk for you to take. In the CNBC special “Charlie Munger: A Life of Wit and Wisdom,” which aired on Thursday, Munger stated, “All we had to do was just employ a little more leverage that was freely available.”
The notion that we would let many individuals down who had put their trust in us when we were younger is the reason we didn’t. We had a lot of wealth even if we lost three quarters of it. That wasn’t the case for all shareholders, he said in the previously unreleased interview with CNBC’s Becky Quick. “It would have been very disappointing to lose three quarters of the money.”
Leverage is often used on Wall Street as a means of increasing purchasing power and improving the possible return on any given investment. However, if the investment doesn’t work out as planned, losses could compound quickly, which dramatically raises the risk.
Avoid having a “unsettled mind.”
The “Oracle of Omaha,” as Buffett is frequently referred to, has previously discussed the dangers of utilising debt and leverage to purchase stocks, claiming that doing so might cause an investor to become panicked and short-sighted when markets tumble.
In his annual letter to shareholders for 2017, he stated, “There is simply no knowing how much equities can fall in a short period of time.” “Your mind may very well become shaken by terrifying headlines and frantic discussion, even if your borrowings are modest and the market decline doesn’t directly endanger your positions. Furthermore, poor decision-making results from an uneasy mind.
Source (CNBC)
