Thinking flaws Tuesday: Leverage

“Warren Buffett once said 'My partner Charlie (Munger) says there is only three ways a smart person can go broke: liquor, ladies, and leverage. Now the truth is – the first two he just added because they started with L – it's leverage. '”

With this statement Charlie Munger isn’t wrong but it gives leverage a negative connotation. What might make a smart person go broke is financial leverage while other kinds of leverage can create immense value and impact. For instance, by leveraging capital, labour, media, technology, code and authenticity a person or company can create immense upsides without any potentially dramatic downsides.

Leverage in itself is not bad, while financial leverage can be bad.