Ladies and leverage – lessons from the affair of the two Huangs

“There is only  three ways a smart person can go broke: Liquor, Ladies and Leverage.”

The quote above is often attributed to Charlie Munger. It has been mentioned by numerous commentators following reports that Jensen Huang, CEO of NVIDIA, admitted to having an affair with Alice Huang.

So even a man as smart as Jensen Huang, one of the leading visionaries in the computer industry and AI, can fall into the “ladies” trap.

To be fair, several high-profile technology executives have also been involved in affairs.. But there is a significant difference in this case: Alice Huang has been described in media reports as a suspected Chinese spy. The FBI is reported to be looking into the case. Give the ‘new look’ Congress may also have something to say next year, the investigation can be long, and certainly will be bad for the company.

In the short term, NVIDIA’s share price may remain under pressure. Some shareholders have reportedly filed a class-action lawsuit in California against Jensen Huang and the company, and further legal action may follow. As Matt Levine of Bloomberg has repeatedly observed, “Everything can be securities fraud” in the US.

ESG investors may also take another look at NVIDIA, which has been rated as low risk by several ESG rating providers. The issue goes beyond the CEO’s personal judgement. NVIDIA has reportedly done business with Alice Huang’s company in Singapore. Press reports about that company’s ownership structure and history raise questions that should be considered as part of proper due diligence. This could point to wider weaknesses in NVIDIA’s governance and controls. Note that NVIDIA is often one of the largest holding in many ESG funds (in June 2025, Morningstar reported that it was the second most widely held by ESG funds). If the CEO’s actions and the structure of the company actually change managers’ views about the company’s ESG  credentials, it can add to the selling pressure by other investors and can be quite substantial.

The market is also concerned that Jensen Huang may have to step down. Given his vocal and financial support for the growth of the AI sector, his departure could have a wider impact on the industry. Nvidia has been described as the central bank of AI, such is the scale of their involvement in supporting the industry. The lack of an obvious successor adds to the concern. It also raises questions about succession planning: a governance issue that investors may have overlooked until now.

But this episode can be a wake-up call for both NVIDIA and its investors.

NVIDIA needs to address the governance issues and manage any consequences, which could include fines or other penalties from the US government. Furture earnings can be affected and downgraded by analysts. The company’s standing in the AI sector may suffer, but its chips remain central to the development of AI. The succession question has also become more urgent to be dealt with. Other companies with powerful, long-serving CEOs have managed leadership transitions successfully. Apple, for example, successfully managed the transition from Steve Jobs to Tim Cook, and then to John Temus. Microsoft saw Bill Gates pass the mantle to Steve Balmer, and then to Satya Nadella.

If NVIDIA’s board and management handle this crisis well, the company could emerge with stronger governance and a more robust succession plan. That could, in time, make its shares a more attractive long-term investment, especially if the valuation of the company falls further.

For investors, remember the final “L” in Charlie Munger’s quote: leverage. Warren Buffett, after quoting Charlie Munger’s three ‘L’s of how to go broke, also commented “Now the truth is — the first two he just added because they started with L — it’s leverage.”  Investors who bought leveraged ETFs linked to NVIDIA may now be facing substantial losses. A leveraged long or short position can generate impressive returns when markets move as expected. But those returns can quickly turn into losses when an unexpected shock hits. The “affairs of the two Huangs” and the US midterm election results are both a reminder of how quickly markets can change direction from unexpected events.

So be careful about using leverage when investing in a company built around a superstar CEO. Jensen Huang may be a visionary and super-star CEO, but he is still human. And, as this episode illustrates, even he is not immune to the risks captured by Munger’s three “Ls”.

James Chu CFA

Head of Investment Solutions