Charlie Munger at Berkshire Hathaway’s annual meeting in Los Angeles, California. May 1, 2021.

Gerard Miller

The late investment icon Charlie Munger said Berkshire Hathaway, the conglomerate he and Warren Buffett built over the past five decades, could have doubled in value if they had used debt to buy companies and common stocks.

Munger, Berkshire Hathaway’s vice chairman who died Tuesday, just a month shy of his 100th birthday, emphasized that he and Buffett almost never used this common Wall Street practice because they always put their shareholders first would have set.

“Berkshire could easily be worth twice as much as it is now. And the additional risk one would have taken would have been virtually nil. All we had to do was just use a little more leverage that was readily available,” Munger said on CNBC’s special “Charlie Munger: A Life of Wit and Wisdom,” which aired Thursday.

“The reason we didn’t do it is the idea of ​​disappointing a lot of people who had trusted us when we were young… If we lost three-quarters of our money, we were still very rich. “That wasn’t true for every shareholder,” he told CNBC’s Becky Quick in the previously unaired interview. “Losing three-quarters of the money would have been a huge disappointment.”

The use of leverage is widespread on Wall Street as it provides a way to increase purchasing power and increase the potential return on a given investment. But it also increases the risk significantly, as losses can quickly multiply if the investment does not perform as expected.

Beware of a “restless mind”

Buffett, often referred to as the “Oracle of Omaha,” previously explained the dangers of using debt and leverage to buy stocks, saying it can make an investor short-sighted and panicked when times become volatile.

“There is simply no telling how much stocks can fall in a short period of time,” he wrote in his 2017 annual letter to shareholders. “Even if your borrowings are small and your positions are not immediately threatened by the falling market, it may be that your mind is unsettled by frightening headlines and breathless commentary. And a restless mind won’t make good decisions.”

Munger said he and Buffett have been “very careful” with their shareholders’ money over the years. Berkshire shareholders, like all of the company’s top managers, are typically long-term investors and often treat their shares like a savings account.

“If Warren and I had owned Berkshire without known shareholders, we would have made more. We would have used more leverage,” Munger said on the CNBC special.

Still, Munger acknowledged that Berkshire used leverage in the form of its insurance fleet. Insurers receive premiums in advance and pay out claims later, allowing them to invest the large amounts collected for their own benefit, free of charge.

“The insurance float has given us some influence. That’s why we got involved,” he said.

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