The Rise and Fall of Rick Guerin: Warren Buffett’s Forgotten Partner—And the Danger of Leverage
Buffett and Munger outlasted Guerin not because they were smarter—but because they avoided leverage.
7/20/20252 min read
The Early Days: Buffett, Munger, and Guerin
In the 1960s, Warren Buffett’s inner circle included two brilliant investors—Charlie Munger and Rick Guerin.
While Munger became Buffett’s legendary right-hand man, Guerin’s story is far less known—and serves as a cautionary tale about the dangers of financial leverage.
Who Was Rick Guerin?
A math whiz and former IBM salesman who met Buffett in the 1950s.
One of Buffett’s earliest partners, investing alongside him in the Buffett Partnership Ltd.
A sharp value investor in his own right—Buffett once called him “one of the best investors I’ve ever met.”
For years, Guerin’s returns rivaled Buffett’s. But there was one critical difference—how they handled risk.
The Fatal Flaw: Guerin’s Addiction to Leverage
While Buffett avoided debt entirely, Guerin borrowed heavily to amplify his bets.
Buffett’s Approach:
“Never lose money.”
Invested only in undervalued, high-quality businesses.
Zero leverage—all gains came from compounding, not debt.
Guerin’s Approach:
Used margin loans (borrowing against stocks) to boost returns.
Believed he could outsmart market downturns.
Took bigger risks for bigger rewards.
For a while, it worked.
The 1973-74 Crash: Guerin’s Downfall
Then came the brutal 1973-74 bear market—one of the worst in history.
Stocks plunged nearly 50%.
Guerin, loaded up on margin debt, faced catastrophic losses.
His lenders issued margin calls, forcing him to sell at the worst possible time.
The Result?
Guerin was wiped out.
He had to sell his Berkshire Hathaway shares—worth hundreds of millions today—just to survive.
Buffett later said:
“Charlie and I always knew Rick was smarter than us. But he couldn’t resist using leverage—and it destroyed him.”
Guerin never recovered financially. He faded into obscurity, while Buffett and Munger built Berkshire into a $900 billion empire.
The Lesson: Why Leverage is a Silent Killer
Guerin’s story illustrates three deadly risks of leverage:
Margin Calls Force You to Sell Low
When markets crash, brokers demand repayment.
You sell at fire-sale prices, locking in losses.
Volatility Destroys Overleveraged Investors
Even great investors can’t predict crashes.
A 50% drop wipes out 100% of a 2:1 leveraged portfolio.
It Sabotages Compounding
Buffett built wealth by never being forced to sell.
Guerin’s debt stole his future returns.
Buffett’s Warning on Leverage
“If you’re smart, you don’t need leverage. If you’re dumb, it’ll ruin you.”
Modern Parallels
Hedge funds blowing up (e.g., Archegos, 2021).
Crypto traders getting liquidated in crashes.
Homebuyers stretched thin on mortgages.
The lesson remains the same: Debt magnifies gains—but guarantees catastrophe eventually.
Final Thought: The Tortoise Always Wins
Buffett and Munger outlasted Guerin not because they were smarter—but because they avoided leverage.