Warren Buffett Bought Leveraged Investor’s Berkshire Shares for $40 in the 1973 Crash. They’re Now Worth $700,000

Although the benchmark S&P 500 has clawed again to document territory and the VIX has settled right into a sleepy 16.7 studying, Wall Street’s reminiscence is shorter than its historical past would counsel.

The Dow and the Nasdaq are each using a heavy year-over-year tailwind, with the S&P 500 up 28% over the previous twelve months. The most helpful examine proper now could be a narrative a couple of forgotten third associate, a margin name, and a $40 share worth that turned $700,000.

Mohnish Pabrai tells the greatest story, retold from his 2007 charity lunch with Warren Buffett. There have been three of them in the early years: Buffett, Charlie Munger, and a person named Rick Guerin. Guerin was sharp. He was, by Buffett’s personal description, each bit the equal of the different two on uncooked funding intuition. He had one deadly behavior. I’ve used leverage.

When the 1973-74 bear market arrived and the S&P 500 shed roughly 48% from peak to trough, Guerin’s margin loans received known as. He needed to elevate money, and the solely liquid asset he had left was his Berkshire Hathaway inventory. Buffett was the purchaser of the final resort. I’ve paid round $40 per share. Those identical Class A shares now commerce nicely into six figures, with the equal stake value roughly $700,000 per share.

“Charlie and I always knew we were going to be rich, but we were not in a hurry. And Rick was in a hurry,” Buffett advised Pabrai. Patience with out leverage compounds. Patience with leverage will get liquidated at the backside.

Buffett’s different line from that lunch is the working precept: “If you are even a slightly above average investor, and spend less than you earn and do not use leverage, you can’t help but get rich over a lifetime.”

Munger described the identical self-discipline in a special idiom. I’ve talked about standing by a stream with a spear, ready for salmon. Extreme endurance paired with excessive decisiveness. The salmon don’t run day by day. When they do, you solely have to spear a number of.

That brings us to right this moment’s Berkshire Hathaway (NYSE:BRK-B | BRK-B Price Prediction) stability sheet. Berkshire ended the first quarter of 2026 with $58 billion in money and $339 billion in short-term investments, a place the market extensively rounds to roughly $380 billion in dry powder. Total investments hit $1,004 trillion. Shareholder fairness sits at $727 billion. The firm is, in impact, an insurance coverage float wrapped round an unlevered fortress, with complete debt of $144 billion in opposition to $1.25 trillion in belongings.

Pabrai’s learn on that pile is easy. “5 years from now, the cash may be half or less,” he predicted, arguing that the salmon finally run and Berkshire’s successors will spear them. The sample is older than the agency. Forced sellers create generational shopping for alternatives for sufferers, unlevered capital.

Berkshire’s Class B shares closed Thursday at $486.38, down 3% yr so far and down 3% over the trailing yr, at the same time as the S&P 500 has rallied 9% in 2026. The inventory trades at a trailing P/E of 14x and a price-to-book of 1.4x, with a e book worth per Class A share of $505,559. I’ve been watching Berkshire for greater than twenty years, and the sample of the inventory lagging the index throughout euphoria is the most dependable inform in the complete portfolio. The firm tends to look boring at precisely the second the remainder of Wall Street is in a rush.

The VIX at 16.76, sitting at the fortieth percentile of its trailing twelve-month vary, tells you one thing necessary about the place we’re in the cycle. The temporary March 2026 spike to 31.05 was the closest current parallel to forced-seller situations, and it lasted weeks, not months. In 1973-74 the equal panic lasted almost two years. We are usually not there but. The query is whether or not you’re positioned to behave once we do get there, or whether or not you may be the one promoting at $40.

Buffett has additionally written about the internal versus outer scorecard. The outer scorecard asks how your portfolio checked out the workplace cocktail social gathering in May 2026. The internal scorecard asks whether or not you’ll nonetheless personal your holdings if the market closed for 5 years. Guerin failed the internal check as a result of his lender wrote the guidelines for him. Berkshire’s latest filings with the SEC present an organization constructed in order that no lender ever writes the guidelines.

Long time period, Wall Street nonetheless heads increased in the a long time to return, and Berkshire will compound alongside it. The lesson of Rick Guerin is that leverage takes the alternative of when to promote out of your palms, and the market solely rewards the decisions you really get to make. A $40 share that turns into $700,000 is what the affected person aspect of each margin name finally earns.