Legendary billionaire investor Warren Buffett has often advised investors to avoid falling into the trap of leverage, his Indian counterpart Rakesh Jhunjhunwala attributes a large part of his success in the stock market to taking leverage. In an interview to CNBC last week, Warren Buffett reiterated, “My partner Charlie (Munger) says there is only three ways a smart person can go broke: liquor, ladies and leverage,” he said. “Now the truth is — the first two he just added because they started with L — it’s leverage,” Buffett added.
Interestingly, Warren Buffett has once again called to the importance of avoiding leveraged positions in Berkshire Hathaway’s annual letter for 2017 released last week. Buffett says that while his aversion to leverage has dampened Berkshire’s returns over the last many years, it has allowed him and Charlie Munger to sleep well. “Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need,” Warren Buffett writes in the letter adding that he has held this view for 5 decades now, when the company was at its inception, and continue to hold this view “after a million or so ‘partners’ have joined us at Berkshire.”
However, Dalal Street’s big bull Rakesh Jhunjhunwala seems to have a contrasting opinion on leverage. Responding to Warren Buffett’s advice regarding leverage, Rakesh Jhunjhunwala said in an interview to ET Now, “Mr Buffett has never taken a leverage so what does he know about leverage?” Rakesh Jhunjhunwala said that if he followed the advise about not taking any leverage after starting with just Rs 5,000, he wouldn’t be where he’s today. “But that is a great man’s opinion, and so be it,” Jhunjhunwala said.
In the same interview, Rakesh Jhunjhunwala said that the stock market rally in January was a midpoint climax, and he expects the equity markets to remain range-bound in calendar year 2018. Further, Rakesh Jhunjhunwala said that the stock market consolidation will help the markets to rise further.