Jeremy Grantham, the stock market's Cassandra

[Telecaster]

For any noobs excited to lose money fast, I have great news: an investment that has already lost 22%.  One of my positions is SQQQ which lost 22% since... Tuesday.  From 2010-2020, the calendar year performance of the market only exceeded that in two calendar years (2013, 2019).  You might say buying SQQQ at Tuesday's open was like losing an entire year of stock performance by Friday's close.

There's only three ways that a smart person can go broke…liquor, ladies, and leverage.

--Charlie Munger

[ChpBstrd]

For any noobs excited to lose money fast, I have great news: an investment that has already lost 22%.  One of my positions is SQQQ which lost 22% since... Tuesday.  From 2010-2020, the calendar year performance of the market only exceeded that in two calendar years (2013, 2019).  You might say buying SQQQ at Tuesday's open was like losing an entire year of stock performance by Friday's close.

I played the deep-ITM covered call game with SQQQ and did well until this week broke me even and I changed direction. Time decay paid for my timing being off.

[MustacheAndaHalf]

For any noobs excited to lose money fast, I have great news: an investment that has already lost 22%.  One of my positions is SQQQ which lost 22% since... Tuesday.  From 2010-2020, the calendar year performance of the market only exceeded that in two calendar years (2013, 2019).  You might say buying SQQQ at Tuesday's open was like losing an entire year of stock performance by Friday's close.

I played the deep-ITM covered call game with SQQQ and did well until this week broke me even and I changed direction. Time decay paid for my timing being off.

To clarify, you held SQQQ and sold deep-ITM covered calls during the past week?

Before I reveal call options, I check Yahoo Finance to make sure my order isn't the only thing there.  If you're comfortable revealing, I'd be curious about the strike and expiration - but feel free to be vague if that's too specific.  (SQQQ lost 20% for the full week, and gained 12% the week before that, so it's a bit more mixed than my "since Tuesday" scare tactic for noobs).

One of my short positions is having a bit of a "Big Short" moment: Bitcoin dropped, and a company related to Bitcoin went up.  Not only that, Schwab pushed the short loan rate up by a few percent a day ago.  Unlike "The Big Short", I'm not an expert and I'm not that tied to my short positions - I might let them go and let the IRS share my taxable loss.

[MustacheAndaHalf]

For any noobs excited to lose money fast, I have great news: an investment that has already lost 22%.  One of my positions is SQQQ which lost 22% since... Tuesday.  From 2010-2020, the calendar year performance of the market only exceeded that in two calendar years (2013, 2019).  You might say buying SQQQ at Tuesday's open was like losing an entire year of stock performance by Friday's close.

There's only three ways that a smart person can go broke…liquor, ladies, and leverage.

--Charlie Munger

Maybe he should follow his own advice?

"Charlie Munger has repeatedly warned investors against borrowing to buy stocks, framing the use of leverage as greedy, reckless, and a form of gambling. Yet the billionaire investor embraced margin debt to finance a major purchase last quarter, a new Securities and Exchange Commission filing shows."
https://markets.businessinsider.com/news/stocks/charlie-munger-daily-journal-byd-alibaba-stock-portfolio-margin-debt-2022-2


And that's the same at Berkshire, so this isn't an isolated use:

"Once he has selected these cheap, quality, low-beta stocks, Buffett magnifies their returns with the judicious use of leverage, which he finances with below-market-cost capital from a balance sheet that includes a sizable float from Berkshire’s insurance holdings."
"Based on numbers disclosed by the company in those public filings, we estimate that Buffett applies a leverage of about 1.6-1, on average."
https://www.ipe.com/insurance-linked-investments-berkshires-leverage/50982.article


All of that said, Mr Buffet has certainly managed the risks of leverage well over decades.  I think a prudent level of leverage would be somewhere below that of an investing legend.  I've also seen the case made that young investors should use maximum leverage early on, possibly going broke and trying again.  Even if the numbers work out well, the behavior that fosters is going to cause trouble later.

[PKFFW]

There's only three ways that a smart person can go broke…liquor, ladies, and leverage.

The quote from Munger is not actually advice though.  He doesn't advise to not use leverage, he merely warns of the danger of using it.

[clifp]

"There's only three ways that a smart person can go broke…liquor, ladies, and leverage.

--Charlie Munger"

Every time, I take out a loan or increase my Schwab pledged asset line. I remind myself of this quote.  I've also said it to dozens of other folks.  Somehow, I keep thinking Warren said it and not Charlie.  Anyway, my apologies to Charlie for years of misattribution.

Berkshire can borrow money really cheaply and has $40 billion in cash/treasury, so I'm not super worried about Warren/Munger and their talented chief investment officers, using a bit of leverage.

[MustacheAndaHalf]

There's only three ways that a smart person can go broke…liquor, ladies, and leverage.

The quote from Munger is not actually advice though.  He doesn't advise to not use leverage, he merely warns of the danger of using it.

Can you quote him saying that is not investment advice?

Because everything Buffet & Munger say is treated as investment advice - they're the most famous investors in the world.  The fact they warn about one thing and do another should be noted, and not ignored.

Another example: "Never bet against America" (2020 Q2).  Buffet's known for buying stocks and having a long holding period.  Yet around the time of that quote, Buffet was dumping his 9% ownership in United Airlines, among other stocks.  Someone who is dumping stocks and preferring cash is betting against American stocks.  To me, "never bet against America" rings hollow based on what Buffet did at the time.  But even if you want to be more charitable to the investor legend, you would have to say his words do not reflect his actions in the stock market.  So if you want useful information about Buffet, you need to follow his stock purchases (which the market does... OXY jumped when Warren's new purchases were revealed, and there's other examples).

So for Buffet, I don't pretend to be better at leverage than him, but I also don't trust him to accurately portray his company's leverage - that's not part of his folksy image.  I would also say 1.6x leverage calls into question if he beat the markets, considering he has been measured against a 1.0x leverage S&P 500.  In any event, look at his actions not his words if you want the highest quality information about what he's actually doing.

[maizefolk]

There's only three ways that a smart person can go broke…liquor, ladies, and leverage.

The quote from Munger is not actually advice though.  He doesn't advise to not use leverage, he merely warns of the danger of using it.

Can you quote him saying that is not investment advice?

"Don't use leverage because you'll go broke" is advice. So is "always bet on red", "never bet against america", and "do not handicap your children by making their lives easy." They are statements about what another person believes you should or should not do.

"If you use leverage you might go broke" is a simple observation. Just like "It might rain tomorrow", "smoking can be hazardous to your health", and "everybody lies about sex." They are statements about what another person believes to be true about the world.

[PKFFW]

Can you quote him saying that is not investment advice?

Because everything Buffet & Munger say is treated as investment advice - they're the most famous investors in the world.  The fact they warn about one thing and do another should be noted, and not ignored.

Does a Dr have to preface every remark with "not medical advice"?  Does a lawyer need to preface every remark with "not legal advice?  I could go on but I'm sure you get the picture.  How something is treated and what it actually is are often two very different things.
 maizefolk has already succinctly pointed out the difference so I wont repeat.

[MustacheAndaHalf]

I think people tend to play semantic games when they run out of information.  That's what I see here, so let me add some information:

5. "If you don't have leverage, you don't get in trouble. That's the only way a smart person can go broke, basically. And I've always said, 'If you're smart, you don't need it; and if you're dumb, you shouldn't be using it.'"

https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-asset-bubble-speculation-leverage-financial-crisis-2022-1

Now do you think he gives advice about leverage?

[PKFFW]

5. "If you don't have leverage, you don't get in trouble. That's the only way a smart person can go broke, basically. And I've always said, 'If you're smart, you don't need it; and if you're dumb, you shouldn't be using it.'"

https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-asset-bubble-speculation-leverage-financial-crisis-2022-1

Now do you think he gives advice about leverage?

Ok yes, the last part of the third sentence is advice specifically directed at dumb people. ".....and if you're dumb, you shouldn't be using it."

The rest is not advice but a statement of how he views things.

I'm supposing by your previous statement that Munger "should follow his own advice" you would be referring to the part "If you're smart, you don't need it;"  However, that's not advising not to use it, only stating that you don't need it.