You hear these stories all the time about investors or hedge fund gurus who borrowed money from friends or even credit cards to get started. Then you hear axioms from the likes of Warren Buffett, who says never to borrow money to buy stocks. Who’s right?
What about factoring into account how much money you borrow to go to school? Student loans can sometimes exceed $100,000 for some students, and even those not going to say medical or law school where there’ more likely to find a job when they graduate. And then you consider how if you have good credit you can easily get a balance transfer loan with a 0% interest rate through a couple credit cards. There are risk though, what if the stock market tanks like it did in 2008 just when you start investing? I guess it comes down to what stocks you’re picking and if you’re going short or long.
For John Burbank of the hedge fund Passport Capital though, borrowing to but stocks was his ticket to success. He borrowed $50K to get started trading stocks and never looked back. What’s key here though is Burbank started trading after he completed business school at Stanford. He certainly wasn’t going into this blindly and with a get rich quick kind of mindset.
Burbank, who graduated from Duke University with an English degree in 1987, never imagined he’d be a trader. He put himself through college running a house-painting business during the summers. After earning $35,000 one year, he figured he’d be an entrepreneur and got an MBA from Stanford University in 1992. Two years later, at the age of 30, he borrowed $50,000 from his credit cards and tried his hand at trading.
“I was curious,” Burbank said in the interview. “After reading and studying it, I decided to start trading. I had never done it before so I had to do it to understand it.”
The experience led to a two-year job as research director for ValueVest Management, and a one-year stint as a consultant for hedge fund JMG Capital Partners LP. In 2000, he founded Passport with $800,000.