Quote · My First Million
Mohnish Pabrai: This will save you 10 years of bad investments
Where this was said
The cautionary tale of Rick Guerin
At 46:30 · chapter starts 45:38
When Pabrai asked Buffett at their charity lunch what had happened to Rick Guerin — Buffett and Munger's original, now-forgotten third partner — the question unlocked what Pabrai considers one of the most important investing lessons of his life [1] — Mohnish Pabrai "Rick Guerin was as good as Buffett and Munger. He was just in a hurry. Margin calls during the 1973-74 crash forced him to sell his Berkshi…" 45:10 . Guerin, Buffett explained, was always in a hurry. He used margin loans. When the 1973-74 bear market arrived — a slow-motion crash of more than 50% over two years — Guerin got margin calls and was forced to liquidate. Warren Buffett bought Guerin's Berkshire Hathaway shares from him for $40 each. Those shares are now worth over $700,000 per share. Buffett distilled the lesson simply: 'If you are even a slightly above-average investor, spend less than you earn, and do not use leverage, you cannot help but get rich over a lifetime.' Leverage is the one variable that can take a great investor and destroy them. Everything else can be survived. Leverage cannot.
Rick Guerin, Warren Buffett's original third partner, was forced to sell his Berkshire Hathaway shares to Buffett for $40 each during the 1973-74 crash due to margin calls; those shares are now worth over $700,000.
