January 6, 2009

According to an article in the WSJ on 1/6/09, Adolf Merckle one of Germany’s wealthiest men, committed suicide. At one point his wealth was estimated at over $9 billion.

It seems that the recent Volkswagen short squeeze hit him hard (see “Volkswagen…The Biggest Company in the World?”- 11/5/08). Prior to his large losses on his short position, Merckle “also overstretched himself in recent years with highly leveraged acquisitions”.

The lesson to me is clear: using leverage is a very dangerous thing. If your right, at best you end up with a larger net worth. But if your wrong…the downside just isn’t worth it.

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