There’s no better place to look for financial advice than from the winners of the game. While leverage (debt) can be perceived as a useful tool, you may be surprised at what billionaires think about it.
The advice may seem so uncommon and yet their results are so uncommon. Is it good fortune that created this mindset, or did this mindset create good fortune?
Read the following quotes from these billionaire investors and decide for yourself.
Charles Schwab: $10 billion
“If there’s not enough money in the bank account, you don’t spend it.”
“When I was 14, I did all kinds of different odd jobs. I had a chicken farm, had an ice cream operation in the summertime, worked as a caddy; all things to make money and save money. Save money in order to invest – that was the first step”
Ken Griffin: $35 billion
“All financial institutions live and die by their liquidity.
We are a financial institution. The fact that many people don’t think about it is beyond me. It is the essence of what we do.”
Mark Cuban: $5 billion
“Pay off your debt first. Freedom from debt is worth more than any amount you can earn.”
“If you’ve got $25,000, $50,000, $100,000, you’re better off paying off any debt you have because that’s a guaranteed return”
Andrew Beal: $10 billion
“I’m not that much of a risk taker.
I just take situations that people perceive to be high risk, and I decide that they can be managed to low risk.”
Ronald Perelman: $1.8 billion
“Happiness is a positive cash flow.”
Bill Gates: $100 billion
“It’s fine to celebrate success, but it is more important to heed the lessons of failure.
We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.
Don’t let yourself be lulled into inaction.”
John Paulson: $3 billion
“The problem in the U.S. financial system is one of solvency.
In general, financial institutions are undercapitalised and have insufficient tangible common equity to support their overlevered and deteriorating balance sheets.”
“Our goal is to preserve principal, not to lose money.”
Ray Dalio: $19 billion
“People who acquire things beyond their usefulness not only will derive little or no marginal gains from these acquisitions, but they also will experience negative consequences, as with any form of gluttony.”
Charlie Munger: $2 billion
“A banker who is allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it if the civilization doesn’t have rules that prevent it.”
Warren Buffett: $100 billion
“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.”
“I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.“
Thomas Peterffy: $25 billion
“Never bend the rules. You bend the rules a little bit and then it’s a slippery slope.”
You might notice that many of these successful investors focus on how much they could lose rather than how much they could gain. They limit things like expenses and wealth draining forces like interest. There’s a reason why these billionaires are so successful.
To end this article, here’s another quote from Ken Griffin that perfectly sums up why debt should be avoided. Debt becomes shackles that prevent investors from experiencing freedom.
“Economic freedom is core to the ethos of our country.
It’s the idea that any person can pursue their dreams, whether it’s starting a business or who they choose to work for. It’s made America America.”
Andrew has always believed that average investors have so much potential to build wealth, through the power of patience, a long term mindset, and compound interest.