Charlie Munger, the late investment icon, made a statement at Berkshire Hathaway’s annual meeting in Los Angeles on May 1, 2021. Munger, who stressed that he and Warren Buffett almost never used leverage, stated that Berkshire Hathaway could have doubled its value if they applied leverage when buying businesses and common stocks. This announcement came just a month before Munger’s death.
Munger emphasized that they often put their shareholders first and thus, chose not to use leverage despite it being a common Wall Street practice. He explained that the idea of disappointing people who had trusted them when they were young was a significant reason for this decision.
The use of leverage is prevalent on Wall Street as it boosts buying power and enhances potential return in investments. However, it also significantly increases risk, as losses can multiply quickly if the investment doesn’t pan out as expected.
Buffett, often called the “Oracle of Omaha,” previously explained the perils of using debt and leverage to buy stocks, highlighting how it can make an investor short-sighted and panicky in volatile times.
Munger echoed Buffett’s cautiousness in handling their shareholders’ money over the years. He also acknowledged that Berkshire did use leverage in the form of its insurance float.
Ultimately, Munger’s insight into the use of leverage and Berkshire Hathaway’s cautious approach to investor’s money provides valuable perspective for long-term investors.
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