LONDON - The road to investment fortune is paved with debt. George Soros’ use of it earned him around $2 billion from his bet against the British pound on what became known as Black Wednesday in September 1992. But leverage is even more effective in reverse, as Bill Hwang and lenders to his stricken family office, Archegos Capital Management, have discovered. The Korean-born hedge fund manager is in good company.
Nearly a century ago, Graham and Keynes found themselves in a similar position. Towards the end of the roaring twenties, both investors enhanced their returns with large slugs of debt. Neither saw the storm clouds gathering over Wall Street. After the October 1929 crash, Graham’s investment fund lost 70% of its value. Graham, who had recently leased a swanky duplex in Manhattan, complete with a valet, was forced to tighten his belt.
Both Graham and Keynes invested with a long-term horizon, holding positions through thick and thin. They viewed the stock market as susceptible to violent mood swings, and sought to profit at times of market turbulence when investors are especially fearful: “It is largely the fluctuations which throw up bargains and uncertainty due to fluctuations which prevents other people from taking advantage of them,” Keynes remarked.
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