Although the benchmark S&P 500 has clawed back to record territory and the VIX has settled into a sleepy 16.7 reading, Wall Street’s memory is shorter than its history would suggest.
The Dow and the Nasdaq are both riding a heavy year-over-year tailwind, with the S&P 500 up 28% over the past twelve months. The most useful study right now is a story about a forgotten third partner, a margin call, and a $40 share price that became $700,000.
Mohnish Pabrai tells the story best, retold from his 2007 charity lunch with Warren Buffett. There were three of them in the early years: Buffett, Charlie Munger, and a man named Rick Guerin. Guerin was sharp. He was, by Buffett’s own description, every bit the equal of the other two on raw investment instinct. He had one fatal habit. He used leverage.
When the 1973-74 bear market arrived and the S&P 500 shed roughly 48% from peak to trough, Guerin’s margin loans got called. He had to raise cash, and the only liquid asset he had left was his Berkshire Hathaway stock. Buffett was the buyer of last resort. He paid around $40 per share. Those same Class A shares now trade well into six figures, with the equivalent stake worth roughly $700,000 per share.
“Charlie and I always knew we were going to be rich, but we were not in a hurry. And Rick was in a hurry,” Buffett told Pabrai. Patience without leverage compounds. Patience with leverage gets liquidated at the bottom.
Buffett’s other line from that lunch is the operating principle: “If you are even a slightly above average investor, and spend less than you earn and do not use leverage, you can’t help but get rich over a lifetime.”
Munger described the same discipline in a different idiom. He talked about standing by a stream with a spear, waiting for salmon. Extreme patience paired with extreme decisiveness. The salmon do not run every day. When they do, you only need to spear a few.
That brings us to today’s Berkshire Hathaway (NYSE:BRK-B | BRK-B Price Prediction) balance sheet. Berkshire ended the first quarter of 2026 with $58 billion in cash and $339 billion in short-term investments, a position the market widely rounds to roughly $380 billion in dry powder. Total investments hit $1.004 trillion. Shareholder equity sits at $727 billion. The company is, in effect, an insurance float wrapped around an unlevered fortress, with total debt of $144 billion against $1.25 trillion in assets.
Pabrai’s read on that pile is simple. “5 years from now, the cash may be half or less,” he predicted, arguing that the salmon eventually run and Berkshire’s successors will spear them. The pattern is older than the firm. Forced sellers create generational buying opportunities for patient, unlevered capital.
Berkshire’s Class B shares closed Thursday at $486.38, down 3% year to date and down 3% over the trailing year, even as the S&P 500 has rallied 9% in 2026. The stock trades at a trailing P/E of 14x and a price-to-book of 1.4x, with a book value per Class A share of $505,559. I have been watching Berkshire for more than two decades, and the pattern of the stock lagging the index during euphoria is the most reliable tell in the entire portfolio. The company tends to look boring at exactly the moment the rest of Wall Street is in a hurry.
The VIX at 16.76, sitting at the 40th percentile of its trailing twelve-month range, tells you something important about where we are in the cycle. The brief March 2026 spike to 31.05 was the closest recent parallel to forced-seller conditions, and it lasted weeks, not months. In 1973-74 the equivalent panic lasted nearly two years. We are not there yet. The question is whether you are positioned to act when we do get there, or whether you will be the one selling at $40.
Buffett has also written about the inner versus outer scorecard. The outer scorecard asks how your portfolio looked at the office cocktail party in May 2026. The inner scorecard asks whether you would still own your holdings if the market closed for five years. Guerin failed the inner test because his lender wrote the rules for him. Berkshire’s latest filings with the SEC show a company built so that no lender ever writes the rules.
Long term, Wall Street still heads higher in the decades to come, and Berkshire will compound alongside it. The lesson of Rick Guerin is that leverage takes the choice of when to sell out of your hands, and the market only rewards the choices you actually get to make. A $40 share that becomes $700,000 is what the patient side of every margin call eventually earns.
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