Warren Buffett once warned students about the perils of excessive borrowing, citing Donald Trump as a case in point.
What Happened: Buffett, during a 1991 Q&A session, was questioned by a Notre Dame student about Trump’s business difficulties.
He responded by emphasizing Trump’s heavy dependence on borrowed money, which subsequently led to the bankruptcy of Trump’s Atlantic City Taj Mahal casino later that year.
Buffett explained, “The big problem with Donald Trump was he never went right. He basically overpaid for properties, but he got people to lend him the money. He was terrific 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 advised the students to emulate his own life as a blueprint for success in business and investing without the heavy reliance on debt.
“You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing,” he stated. “I’ve never borrowed a significant amount of money in my life. Never. Never will. I’ve got no interest in it,” according to former hedge fund manager Whitney Tilson.
Also Read: Here’s How Warren Buffett Made Billions From An Industry He Didn’t Understand
Buffett’s viewpoint on borrowing has remained unwavering over the years. In his 2017 annual letter to Berkshire Hathaway shareholders and during a subsequent CNBC interview, he cautioned investors against using debt to purchase stocks.
Why It Matters: Buffett’s advice underscores the importance of financial prudence and the potential pitfalls of over-reliance on debt.
His consistent stance on this issue serves as a valuable lesson for investors and business students alike, emphasizing the importance of sustainable financial practices over quick, debt-fueled gains.
This timeless advice is particularly relevant in today’s economic climate, where easy access to credit can often lead to unsustainable debt levels.
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