Charlie Munger Said Smart Men Go Broke From 'Ladies, Liquor, And Leverage'—But Warren Buffett Says Only One Of Those Will Actually Take You Down

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Warren Buffett has quoted his longtime business partner Charlie Munger more times than he can count. But one of the most memorable lines? It had a rhythm — and a warning.

“My partner Charlie says there is only three ways a smart person can go broke: liquor, ladies and leverage,” Buffett said during a 2018 CNBC interview. Then came the twist: “Now the truth is — the first two he just added because they started with L — it’s leverage.”

So while the line gets laughs, Buffett wasn’t joking. And he wasn’t being subtle.

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Leverage — borrowing money to chase bigger gains — is the real threat, the only one on that list Buffett says can actually take someone down. It doesn’t matter how smart you are. If the numbers turn against you, debt doesn’t blink.

“Unquestionably, some people have become very rich through the use of borrowed money,” Buffett wrote in his 2010 shareholder letter. “However, that’s also been a way to get very poor.” Then he delivered the kind of bottom-line truth most people ignore: “History tells us that leverage all too often produces zeros, even when it is employed by very smart people.”

Even Munger admitted they left money on the table by playing it safe. In a 2023 CNBC special recorded shortly before his death, he said, “Berkshire could easily be worth twice what it is now. And the extra risk you would’ve taken would’ve been practically nothing. All we had to do is just use a little more leverage that was easily available.”

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But they didn’t. And Munger explained why.

“The reason we didn’t is the idea of disappointing a lot of people who had trusted us when we were young,” he told CNBC’s Becky Quick. “If we lost three quarters of our money, we were still very rich. That wasn’t true of every shareholder.”

For Munger, that wasn’t a theoretical risk. After divorcing his first wife in 1953, he was left with almost nothing. In the book “Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger,” his daughter Molly said he “lost everything in the divorce” — including the family home. But he showed up for his kids, worked his way back, and eventually built a fortune without borrowed money.