Charlie Munger said Berkshire would be worth double if he and Buffett used this common practice

The
late
investment
icon
Charlie
Munger
said


Berkshire
Hathaway,
the
conglomerate
he
and
Warren
Buffett
built
over
the
last
five
decades,
could
have
doubled
its
value
if
they
applied
leverage,
or
borrowed
money,
when
buying
businesses
and
common
stocks.

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

“Berkshire
could
easily
be
worth
twice
what
it
is
now.
And
the
extra
risk
you
would’ve
taken
would’ve
been
practically
nothing.
All
we
had
to
do
is
just
use
a
little
more
leverage
that
was
easily
available,”
Munger
said
in
CNBC’s
special
“Charlie
Munger:
A
Life
of
Wit
and
Wisdom,”
which
aired
Thursday.

“The
reason
we
didn’t
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
of
every
shareholder,”
he
told
CNBC’s
Becky
Quick
in
the
previously
unaired
interview.
“Losing
three
quarters
of
the
money
would’ve
been
a
big
letdown.”

The
use
of
leverage
is
prevalent
on
Wall
Street
as
it
provides
a
way
to
boost
buying
power
and
enhance
the
potential
return
in
any
given
investment.
But
it
also
significantly
increases
the
risk
as
losses
can
multiply
quickly
if
the
investment
doesn’t
pan
out
as
expected.

Beware
an
‘unsettled
mind’

Buffett,
often
called
the
“Oracle
of
Omaha,”

previously
explained
the
perils
of
using
debt
and
leverage
to
buy
stocks,
saying
it
can
make
an
investor
short-sighted
and
panicky
when
times
turn
volatile.

“There
is
simply
no
telling
how
far
stocks
can
fall
in
a
short
period,”
he
wrote
in
his
2017
annual
letter
to shareholders.
“Even
if
your
borrowings
are
small
and
your
positions
aren’t
immediately
threatened
by
the
plunging
market,
your
mind
may
well
become
rattled
by
scary
headlines
and
breathless
commentary.
And
an
unsettled
mind
will
not
make
good
decisions.”

Munger
said
he
and
Buffett
had
been
“very
cautious”
in
handling
their
shareholders’
money
over
the
years.
Berkshire
shareholders
tend
to
be
long-term
investors
like
all
the
conglomerate’s
top
executives,
often
treating
their
stock
like
a
savings
account.

“If
Warren
and
I
had
owned
Berkshire
without
any
shareholders
that
we
knew,
we
would’ve
made
more.
We
would’ve
used
more
leverage,”
Munger
said
in
the
CNBC
special.

Still,
Munger
acknowledged
that
Berkshire
did
use
leverage
in
the
form
of
its

insurance
float.
Insurers
receive
premiums
upfront
and
pay
claims
later,
so
they
can
invest
the
large
sums
collected
—
cost
free
—
for
their
own
benefit.

“Insurance
float
gave
us
some
leverage.
That’s
why
we
went
into
it,”
he
said.