The Warren Buffett partner you never heard of

Hello there!

I’m Tanyo, and I wrote today’s edition of WOLF’s newsletter. If you want to see more of my work, subscribe to my own free newsletter.

I share invaluable insights on life and business every Friday.

Everyone loves a story about patience, perseverance, and hard work that ends with success.

Well, this story ain’t about that.

This story is about a lack of patience.

Back in the 70s, the investing OGs, Warren Buffett and Charlie Munger, had a third business partner, Rick Guerin.

“Wait, Buffett and Munger had a partner in crime, how come we haven’t heard of him?”

This story will answer this question.

The Story of Rick Guerin

Back in the 70s and 80s, Rick Guerin worked with Charlie Munger and Warren Buffett.

His company, Pacific Partners, was buying controlling stakes in companies alongside Berkshire Hathaway.

He was doing alright for himself.

Between 1969 and 1983, Pacific Partners had a return of 22,000%.

In the same period, the S&P 500 generated 316%, so he outperformed the market by almost 100x.

He was so good that Buffett put Rick’s name on his list of super investors.

But soon after, Rick disappeared from the investing world.

So what happened to him?

The same thing that happens to a lot of investors who generate these types of returns - leverage.

Rick used margin loans to generate these returns.

It was working for him pretty well until the stock market dropped by 70% in two years.

As a result, he got margin called, so he was forced to sell his Berkshire Hathaway stock to Buffett for $40 apiece.

The stock price right now is over $330 apiece.

While Charlie Munger and Buffett went on to become two of the most admired and successful investors in the world, Rick disappeared from the financial world.

When asked about him, Buffett had this to say:

“Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry.”

What Can We Learn From Rick Guerin?

Three lessons come to mind:

1) Patience

Rick was on the right path to success.

Investing alongside Munger and Buffett is a sure way to become rich.

However, his lack of patience cost him.

While there are reports that he recovered after the 70% market drop, he never got the recognition (and success) that Munger and Buffett got.

Sometimes, being on the right path isn’t enough.

You also need to be patient.

2) Choose the right mindset for the game you’re playing

Rick played investing (a long-term game) with a short-term mindset.

His rush to become rich made him successful in the short term but poor in the long run.

I’m reminded of another Buffett quote:

“Only when the tide goes out do you discover who’s been swimming naked."

3) Leverage = Risk

By all reports and even Munger and Buffett’s admission, Rick was just as smart and capable as them.

But his lack of patience made him susceptible to a drug that can influence even the most sophisticated investors - leverage.

And with leverage comes risk.

But investors who use leverage don’t focus on the risk, they focus on the potential returns they can get using it.

As a result, 99.9% of the time, they become like Rick - a cautionary tale that other investors can learn from.

If you enjoyed today’s edition, you’ll love my free newsletter.

Join 400 entrepreneurs and marketers who get it free every Friday below 👇