This archive report was first published on 21 November 2019.
Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, has long been a proponent of caution when it comes to using borrowed money to buy stocks.
As he told CNBC in a recent interview, "It is crazy in my view to borrow money on securities. It's insane to risk what you have and need for something you don't really need.... You will not be way happier if you double your net worth."
Buffett's warning against leverage is echoed by his partner, Charlie Munger, who has said that there are only three ways a smart person can go broke: liquor, ladies, and leverage. Buffett has jokingly added that the first two were included because they started with the letter L.
Buffett's concerns about leverage are not just theoretical; he has shared data from Berkshire Hathaway's 53-year history that shows the company's stock has declined by as much as 59 percent multiple times over the last five decades.
As he wrote in his 2017 annual letter to Berkshire Hathaway shareholders, "This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period."
