Latest / The Dutch Investors / #65 | Liquor, Ladies & Leverage | The three L’s that ruin great men

Transcript

#65 | Liquor, Ladies & Leverage | The three L’s that ruin great men · The Dutch Investors

0:00
SPEAKER_00: Why do some of the smartest people on the planet still end up broke?
0:06
SPEAKER_00: And I'm not talking about lottery winners who blew through a fortune or gamblers chasing losses.
0:13
SPEAKER_00: I'm talking about highly intelligent, capable people.
0:18
SPEAKER_00: The kind of people who ace standardize tests, hold degrees from top schools, maybe even run companies.
0:26
SPEAKER_00: The people you'd expect to be bulletproof when it comes to money and how to manage money.
0:33
SPEAKER_00: Yet they're not.
0:35
SPEAKER_00: Because intelligence and financial success don't always correlate.
0:41
SPEAKER_00: If anything, sometimes intelligence hurts.
0:45
SPEAKER_00: This and more in today's episode.
1:06
SPEAKER_00: Smart people are often trained to look for complexity, to believe the harder something is to understand, the smarter it must be and the better it must be.
1:16
SPEAKER_00: But in investing, the opposite is often true.
1:20
SPEAKER_00: Simplicity wins.
1:22
SPEAKER_00: Think about long-term capital management in the late 90s.
1:27
SPEAKER_00: This wasn't a bunch of amateurs.
1:30
SPEAKER_00: The firm was run by Nobel Prize-winning economists.
1:33
SPEAKER_00: They built this incredibly sophisticated model to eliminate risk.
1:40
SPEAKER_00: And it still blew up spectacularly, almost taking the global financial system with them.
1:48
SPEAKER_00: Not because they weren't smart, they were, but because they were too sure of their own models.
1:55
SPEAKER_00: Or take the Dunning-Kruger effect, the idea that the more confident we are in a specific area, the more blind spots we tend to have.
2:05
SPEAKER_00: Intelligence doesn't make you immune to that, and it can actually make it worse.
2:10
SPEAKER_00: When you're used to being right, you stop double-checking your own assumptions.
2:15
SPEAKER_00: Charlie Munger once said there are three main reasons people go broke liquor, ladies, and leverage.
2:24
SPEAKER_00: Now it sounds like the setup to a bad country song, I know, but those three words have destroyed more wealth than recessions or inflation ever did.
2:35
SPEAKER_00: Let's start where, well, let's be honest, most people would start liquor.
2:42
SPEAKER_00: You've probably walked into a bar or a supermarket and seen Diaijo's lineup without even realizing it.
2:49
SPEAKER_00: Think about Guinness, Johnny Walker, Captain Morgan, Casamigos, they practically own the shelves.
2:56
SPEAKER_00: Liquor has always been a fascinating industry because it's built around one of the most profitable products on earth.
3:03
SPEAKER_00: Something buy to enjoy themselves or escape reality.
3:09
SPEAKER_00: But it's also one of the easiest ways to lose control of your own.
3:13
SPEAKER_00: Some of the smartest people, investors, founders, and CEOs in history have had their downfall rooted in addiction.
3:23
SPEAKER_00: Not necessarily alcohol itself, but the loss of discipline that comes with it.
3:28
SPEAKER_00: You see it over and over again.
3:30
SPEAKER_00: Brilliant, wealthy people making impulsive decisions, clouded judgment, unchecked confidence.
3:38
SPEAKER_00: It's why Warren Buffett and Munger talk so much about temperament.
3:42
SPEAKER_00: Buffett once said, if you can't control your emotions, you can't control your money.
3:49
SPEAKER_00: And that's true.
3:50
SPEAKER_00: And that's what liquor represents: losing the ability to control yourself.
3:56
SPEAKER_00: Think of it like a leak in a dam.
3:59
SPEAKER_00: It starts small, but the pressure builds up until the entire wall collapses.
4:05
SPEAKER_00: The central theme here is human behavior.
4:08
SPEAKER_00: Alcohol abuse doesn't just drain a bank account, it drains the ability to earn and manage one.
4:14
SPEAKER_00: The initial counterintuitive truth is that the financial stress often drives drinking, and drinking creates more financial stress.
4:23
SPEAKER_00: It's a closed-loop system of self-destruction.
4:28
SPEAKER_00: Many people use alcohol as a temporary shield against anxiety, depression, or ironically, existing financial strain.
4:39
SPEAKER_00: When the problems disappear for a night, the brain learns that alcohol was the solution.
4:45
SPEAKER_00: Alcohol acts on the prefrontal cortex, the brain's financial planner.
4:49
SPEAKER_00: As a wise friend might say, you're not spending with your calculator, you're spending with your mood.
4:56
SPEAKER_00: The daily cost of sustaining a dependency quickly compounds.
5:00
SPEAKER_00: A habit that might seem like a manageable$10 to$20 a day can easily balloon into the thousands of dollars a year.
5:08
SPEAKER_00: And happy drinkers often spend much more.
5:11
SPEAKER_00: Money that should be paying rent, utilities or groceries, or just having fun with friends or investing is diverted to maintain the addiction.
5:21
SPEAKER_00: The simple truth is that excessive drinking is a system designed to eliminate both the income and the assets of the user, leading to a financial dead end that often manifests as eviction, foreclosure, and bankruptcy.
5:36
SPEAKER_00: So have fun, but drink responsibly.
5:40
SPEAKER_00: Now let's move to the second one.
5:43
SPEAKER_00: Now, when Charlie Munger said ladies, he didn't mean women are the problem.
5:49
SPEAKER_00: Far from it.
5:50
SPEAKER_00: What he meant was lust, ego, and distraction.
5:55
SPEAKER_00: So it should be named men, but that didn't fit the theme.
5:59
SPEAKER_00: The loss of focus that comes when desire starts running the show.
6:05
SPEAKER_00: History is full of it.
6:07
SPEAKER_00: Kings, presidents, CEOs, entire empires have collapsed because someone couldn't separate emotion from judgment.
6:15
SPEAKER_00: They started mixing business with pleasure, and money doesn't survive that combination for long.
6:22
SPEAKER_00: Howard Hughes was once the richest man in America.
6:27
SPEAKER_00: He was a genius.
6:28
SPEAKER_00: He was a pilot, engineer, a movie producer, and an industrialist.
6:35
SPEAKER_00: He built record-breaking aircraft, ran Hughes Aircraft, one of the most advanced aviation companies in the world.
6:43
SPEAKER_00: He lived like a rock star before rock stars even existed.
6:48
SPEAKER_00: But for all his brilliance, Hughes' downfall didn't come from a bad investment or economic collapse.
6:55
SPEAKER_00: It came from losing control, to addiction, obsession, and isolation, much of it fueled by his relationships and the chaos around them.
7:04
SPEAKER_00: He was involved with Hollywood's most famous women Catherine Hepburn, Ava Gardner, Lena Turner, John Peters, even rumors of ties to Marilyn Monroe.
7:17
SPEAKER_00: But it wasn't only romance for Hughes.
7:20
SPEAKER_00: For him, it was also about possession.
7:23
SPEAKER_00: Hughes used his wealth to control, protect, and manipulate.
7:28
SPEAKER_00: He kept files on his ex-lovers, hired bodyguards to follow him, even paid off studios to keep them out of films if they rejected him.
7:37
SPEAKER_00: But behind the charm was paranoia.
7:41
SPEAKER_00: He became obsessed with things like germs, secrecy, and control.
7:48
SPEAKER_00: Locked in dark hotel rooms for months, doped up on drugs like Valium, surrounded by women and people who followed his every word.
7:57
SPEAKER_00: He spent millions buying entire floors just to be left alone.
8:04
SPEAKER_00: By the end, the man who had flown experimental planes and built a billion dollar business was a prisoner of his own mind.
8:13
SPEAKER_00: His empire gone, fractured.
8:16
SPEAKER_00: His body gave out.
8:18
SPEAKER_00: He died in 1976, six four tall, weighing just ninety pounds, or forty five kilograms.
8:27
SPEAKER_00: His hair long and matted, fingernails curling inches long.
8:33
SPEAKER_00: The autopsy found ten broken, hypodermic needles lodged into his arms.
8:40
SPEAKER_00: It's one of the most horrific and clearest examples of how discipline and not intelligence determined survival.
8:50
SPEAKER_00: Hughes had it all.
8:52
SPEAKER_00: He had a great mind, a great drive, talent, money.
8:56
SPEAKER_00: He had it all.
8:58
SPEAKER_00: But he lost his mind.
9:00
SPEAKER_00: Not just due to ladies, but in combination with liquor, leverage, drugs, and anything else.
9:08
SPEAKER_00: He led obsession, whether for control, validation, or love, consume him.
9:14
SPEAKER_00: And when that happens, it doesn't really matter how much money you have.
9:19
SPEAKER_00: The fall always looks the same.
9:22
SPEAKER_00: It's about distraction and delusion, the illusion that you can juggle it all while the basics fall apart.
9:28
SPEAKER_00: You start working to impress instead of to build.
9:32
SPEAKER_00: You start spending for validation, cars, watches, parties, all to prove you're still in control.
9:39
SPEAKER_00: You're impressing ladies and others, at least that's what you're trying to do.
9:44
SPEAKER_00: Psychologists call it ego depletion.
9:48
SPEAKER_00: The more emotional energy you spend on appearances or drama, the less is left for rational decisions.
9:56
SPEAKER_00: It's why great investors stay boring.
9:59
SPEAKER_00: They save their energy for what matters to them.
10:02
SPEAKER_00: Staying focused, thinking clearly, and compounding quietly.
10:07
SPEAKER_00: That's what Munger meant.
10:09
SPEAKER_00: Ladies isn't about romance, it's about temptation, distraction, and the slow erosion of discipline that comes when the ego takes the wheel.
10:20
SPEAKER_00: Alright, the third and final L, leverage.
10:26
SPEAKER_00: Here's a story you might not have heard before.
10:29
SPEAKER_00: It's about Rick Quaring.
10:32
SPEAKER_00: Between 1965 and 1983, his investment returns beat Warren Buffett's.
10:47
SPEAKER_00: And they weren't strangers to each other.
10:50
SPEAKER_00: Rick, Buffett, and Munger even did deals together, like the Cease Candies acquisition.
10:57
SPEAKER_00: So where is Rick Querin now?
11:00
SPEAKER_00: Why isn't his name up there with Buffett and Munger?
11:04
SPEAKER_00: Well the answer is quite simple, and you guessed it, leverage.
11:09
SPEAKER_00: Rick was in a hurry to get rich.
11:11
SPEAKER_00: He borrowed money to invest, and when the market took a dive in 73 and 74, margin calls forced him to sell his Berkshire Hathaway shares for just$40 each.
11:23
SPEAKER_00: Now, you guess who bought his shares.
11:27
SPEAKER_00: Well, if you said Warren Buffett, you were correct.
11:31
SPEAKER_00: Buffett later said that the big difference between him, Munger, and Rick was simple.
11:36
SPEAKER_00: He and Munger were never in a hurry to get rich.
11:40
SPEAKER_00: Rick was in a hurry.
11:42
SPEAKER_00: So be and stay patient.
11:45
SPEAKER_00: However hard it may be, don't invest with leverage.
11:49
SPEAKER_00: I have friends around me making tons of money on crypto, selling Pokemon cards for thousands of dollars, investing with lots of leverage.
11:58
SPEAKER_00: They're all telling us to jump in, because it's easy money and a certainty.
12:04
SPEAKER_00: And it's quite hard not to feel FOMO, the fear of missing out.
12:09
SPEAKER_00: The only thing worse than losing money is seeing others making tons of money.
12:15
SPEAKER_00: Some of the people I know are investing their entire student loan in crap like that.
12:21
SPEAKER_00: It might go well for weeks, months, maybe even years, but some will get burnt.
12:28
SPEAKER_00: They will get out too late.
12:30
SPEAKER_00: Don't invest with borrowed money.
12:33
SPEAKER_00: It can make you rich faster, but it can wipe you out even faster.
12:38
SPEAKER_00: Think about Warren Buffett's golden rules.
12:41
SPEAKER_00: Rule number one, don't lose money.
12:43
SPEAKER_00: Rule number two, think about rule number one.
12:48
SPEAKER_00: So, remember the three L's liquor, ladies and leverage.
12:54
SPEAKER_00: We distilled them into six lessons you can take away.
12:57
SPEAKER_00: One let rules guide you when patience runs thin.
13:03
SPEAKER_00: Two, surround yourself with thoughtful and honest people.
13:09
SPEAKER_00: Temper your ego.
13:12
SPEAKER_00: Stay humble and grounded.
13:15
SPEAKER_00: 5.
13:16
SPEAKER_00: Be patient and try to avoid FOMO.
13:19
SPEAKER_00: And six, never invest with borrowed money.
13:24
SPEAKER_00: That's it for today's episode.
13:27
SPEAKER_00: As always, stay curious, keep learning, and happy investing.