Don’t borrow money like Donald Trump
Warren Buffett warned students of the dangers of using debt and leverage decades ago, using Donald Trump as a negative case study.
Buffett was asked by a Notre Dame student about Trump’s business troubles during a question-and-answer session in 1991. Trump’s Atlantic City Taj Mahal casino filed for chapter 11 bankruptcy protection later that year.
“Where did Donald Trump go wrong? The big problem with Donald Trump is that he never did well. He basically paid too much for properties, but he got people to lend him money. money. He was great at borrowing money. If you look at his assets, and what he paid for them, and what he borrowed to get them, there was never any real equity there,” Buffett said, according to a published transcript by former hedge fund manager Whitney Tilson.
“I’ve seen more people fail because of alcohol and leverage – leverage being borrowed money. Donald Trump failed because of leverage. could repay.”
Value investing aficionados are excitedly discussing the Oracle of Omaha’s timeless investment advice and wisdom ahead of Berkshire Hathaway’s annual meeting in early May. Discussion of Buffett’s 1991 comments on leverage and Trump gained traction on social media on Wednesday.
Buffett also told students to instead use his own life as a model for how to succeed in business and how to invest without using a lot of debt.
“You really don’t need a lot of leverage in this world. If you’re smart, you’ll make a lot of money without borrowing,” he said. “I’ve never borrowed a large amount of money in my life. Never. I never will. I’m not interested.”
The sage advice of the investor on leverage has not changed over the years.
Buffett repeated his warning and told investors not to use debt to buy stock in his 2017 annual letter to Berkshire Hathaway shareholders published in February and during an interview with CNBC a few days later.
“It’s crazy in my opinion to borrow money on securities,” he told CNBC. “It’s foolish to risk what you have and what you need for something you don’t really need. … You won’t be happier if you double your net worth.”
Berkshire Hathaway did not immediately respond to a request for comment.