The Rick Guerin Lesson: Warren Buffett on Why Smart People Get Wiped Out in a Hurry

The Forgotten Third Partner of Berkshire Hathaway

During the 1960s and early 1970s, Warren Buffett and Charlie Munger did not operate as a duo; they were an investing trio alongside a brilliant investor named Rick Guerin. Guerin attended Caltech, possessed off-the-charts intellectual horsepower, and was every bit as gifted at securities analysis as Buffett and Munger.

Yet today, the world knows Buffett and Munger, while Rick Guerin is a footnote in financial history. When hedge fund manager Mohnish Pabrai asked Buffett what happened to Guerin, Buffett provided a chilling, succinct answer: ‘Charlie and I always knew we’d become incredibly wealthy. We were not in a hurry to get wealthy. Rick was just as smart as us, but he was in a hurry.‘

The Fatal 1973 Margin Call

During the brutal 1973-1974 bear market, when the S&P dropped over 40%, Guerin had financed his stock positions using margin debt. The brokerage issued margin calls. To cover his debts, Guerin was forced to sell his personal Berkshire Hathaway shares to Warren Buffett for less than $40 per share. Those exact shares would later be worth over $500,000 each. Guerin was wiped out not because his investment thesis was wrong, but because his timeline was artificially compressed by borrowed money.

Investor	Intellectual Horsepower	Leverage Approach	40-Year Wealth Trajectory
Warren Buffett	Exceptional	Zero margin debt; heavy cash cushions	Over $100 Billion net worth; unbroken compounding
Charlie Munger	Exceptional	Avoided leverage; prized patience	Multi-billionaire; lived to 99 with complete autonomy
Rick Guerin	Exceptional (Caltech alumni)	Aggressive margin to accelerate returns	Forced sale at 1974 bottom; eliminated from partnership

Actionable Rules for Sustainable Solvency

1. Accept a slower compounding trajectory: a reliable 8% annual return over 40 years crushes an volatile 25% return that blows up in year 5.
2. Never use borrowed money to buy volatile assets: liquidators do not care about your long-term thesis.
3. Remind yourself daily: you do not need to beat the market this year; you only need to survive the next thirty years.

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