- Warren Buffett compared reckless borrowing and trading to playing Russian roulette.
- The Berkshire Hathaway CEO said he would never gamble his company for a shot at more money.
- People shouldn't risk their wealth and reputation for cash they don't need, Buffett said.
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Warren Buffett famously says the first rule of investing is "don't lose money." The billionaire investor and Berkshire Hathaway CEO has embraced that principle throughout his career, even comparing aggressive borrowing and reckless trading to gambling with one's life.
"It is madness to risk losing what you need in pursuing what you simply desire," Buffett said in his 2014 letter to shareholders. "We will never play financial Russian roulette with the funds you've entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet."
Buffett takes a conservative approach to Berkshire's finances so that he's always ready when disaster strikes, he continued. Minimizing borrowing means leaving money on the table, but it also prevents his company from getting into trouble in periods when "credit vanishes and debt becomes financially fatal," he said.
"A Russian-roulette equation - usually win, occasionally die - may make financial sense for someone who gets a piece of a company's upside but does not share in its downside," he said in his 2018 letter. "But that strategy would be madness for Berkshire."
Buffett deployed the same analogy during Berkshire's annual shareholder meeting in 1999. He was discussing Long-Term Capital Management, a top hedge fund that had just collapsed under a mountain of debt and derivatives.
"It's like playing Russian roulette," Buffett said about individuals risking their wealth and reputation for a chance at making money they don't need. "If you hand me a revolver with six chambers and one bullet, and you say, 'Pull it once for a million dollars,' and I say, 'No.' And then you say, 'What is your price?' The answer is there is no price."
Buffett asserted that people, especially the rich, shouldn't risk failure and embarrassment for any sum. They shouldn't bet the farm even with a 99% chance of success, he continued, noting that the percentage probability of surviving a round of Russian roulette with a six-chamber revolver and a single bullet is a solid 83.3%.
"Neither 83.3% or 99% is good enough when there is no gain to offset the risk of loss," he said.
Buffett underlined his views during a CNBC interview in 2018. People only make leveraged wagers because they're in a hurry to get rich, and they risk going broke and devastating their families, he said.
The investor also shared his reaction when someone tells him they staged a comeback and became wealthy again: "I'm not impressed, because why the hell did they lose their first fortune?"