LONDON (Reuters Breakingviews) - The road to investment fortune is paved with debt. George Soros’ use of it earned him around $2 billion from his bet against the British pound on what became known as Black Wednesday in September 1992. But leverage is even more effective in reverse, as Bill Hwang and lenders to his stricken family office, Archegos Capital Management, have discovered. The Korean-born hedge fund manager is in good company. Two of the greatest investors of all time, Benjamin Graham and John Maynard Keynes, were both nearly wiped out after taking on too much debt. Fortunately, they survived to learn the error of their ways. Archegos levered its $10 billion of capital by as much as nine times, according to published reports. Debt presumably contributed to the mind-blowing returns after the fund started life in 2012, with assets of just $200 million. The fact that Hwang’s investments were concentrated in a handful of Chinese internet companies, together with a massive bet on ViacomCBS, the media firm, further magnified investment risks. Losses on ViacomCBS shares triggered the margin calls that soon exploded Hwang’s multibillion-dollar fortune. Nearly a century ago, Graham and Keynes found themselves in a similar position. Towards the end of the roaring twenties, both investors enhanced their returns with large slugs of debt. Neither saw the storm clouds gathering over Wall Street. After the October 1929 crash, Graham’s investment fund lost 70% of its value. Graham, who had recently leased a swanky duplex in Manhattan, complete with a valet, was forced to tighten his belt. The “Dean of Wall Street”, as Graham later became known, went on to elaborate the conservative principles of value investing, which guided his disciple Warren Buffett to fabulous wealth. In the late 1920s, aside from being England’s most famous economist, Keynes held a variety of positions in the City of London and invested extensively on his own account. He regularly speculated in commodities and currencies and, like Hwang, held a concentrated portfolio of common stocks on leverage. In 1928, however, the Cambridge economist faced margin calls after some of his bets soured. Keynes’ largest equity position, Austin Motors, later shed three-quarters of its value. By the end of 1929, his net worth had dropped 80% from its peak a couple of years earlier. Like Graham, Keynes learned valuable lessons from this harrowing experience. First off, he gave up trying to apply his economic expertise to predict movements in the business cycle. Instead, like Graham, Keynes adopted the discipline of buying shares at less than their intrinsic value. Both investors insisted their stock purchases come with a “margin of safety” to protect them against loss. Whereas Graham opted for stocks that were cheap relative to book value, Keynes emphasised the quality of the companies he invested in. In this respect, Keynes anticipated Buffett’s investment style. “When the safety, excellence and the cheapness of a share is generally realised,” he asserted, “its price is bound to go up.” Both Graham and Keynes invested with a long-term horizon, holding positions through thick and thin. They viewed the stock market as susceptible to violent mood swings, and sought to profit at times of market turbulence when investors are especially fearful: “It is largely the fluctuations which throw up bargains and uncertainty due to fluctuations which prevents other people from taking advantage of them,” Keynes remarked. He earned a reputation for being quick off the mark whenever he spotted an investment bargain. Keynes’ stock market investments were highly concentrated. In 1931, he owned shares in just two companies, both of them British carmakers. His investment philosophy is summed up by Mark Twain’s adage: “Put all your eggs in one basket and watch that basket.” After 1929, Keynes enjoyed extraordinary investment success, outperforming the benchmark in two out of every three years. His net worth, which by late 1929 had sunk below 8,000 pounds, exceeded 500,000 pounds in 1936. This 62-fold increase is greater than Hwang achieved over a slightly longer timeframe. Investing for the long term in a concentrated portfolio of stocks, while simultaneously taking advantage of market opportunities as they crop up, is not compatible with operating on leverage. Heavily indebted investors, like Hwang, face margin calls when the stock market drops and are in no position to snap up bargains. In “The Intelligent Investor”, Graham declared that holding stocks on margin was “ipso facto speculating”. Buying internet or tech stocks on margin, as Hwang did, is even riskier. Keynes agreed with his American counterpart, noting that “an investor who proposes to ignore short-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money.” In public, Keynes continued to inveigh against speculation. His “General Theory of Employment, Interest and Money” contains a famous warning that “when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” But in private, Keynes couldn’t resist a leveraged bet. In 1936, the same year that the “General Theory” was published, his position in the wheat market grew so large that it amounted to Britain’s total monthly consumption. Keynes is said to have considered taking delivery and storing the grain in the chapel of King’s College, Cambridge, where he was bursar. When the U.S. stock market dived the following year, Keynes’ net worth declined by nearly 60%. These losses were never fully recovered in his lifetime. The truth is that Keynes loved to play the markets and found prudent investment somewhat dull. “The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct,” he wrote, “whilst he who has it must pay to this propensity the appropriate toll.” This remark, like all the other insightful investment commentary in the “General Theory”, is based on Keynes’ personal experience. Hwang, who gambled with far greater leverage than Keynes ever did, now pays the “appropriate toll”.