Navigating the Risks and Rewards of Leverage in Investments

Psychology often leads to extremes due to leverage, with high gains leading to painful losses. Excessive leverage reveals capital destruction triggered by debt in good times. Therefore, leverage should optimize gains rather than maximize them. It magnifies gains but also losses, necessitating cautious use. Leverage should be based on prudent assumptions and less than the maximum available to mitigate risk of ruin. The key is the margin of safety advised by Warren Buffett. Using 100% leverage may jeopardize survival; hence, it's crucial to use conservative assumptions and less leverage for riskier assets. Being bold in leveraging can risk financial life, emphasizing caution in investment decisions.