John:
I share your view.
Over this past two or three years, I have become fascinated by the impact of burgeoning debt on company performance. This interest resulted from an in-depth study of the causes, events and fall-out of the depression of the thirties that I did a few years ago. Then as now, debt that could not be serviced caused many companies to disappear. History repeats. (g)
As I have noted in the past, I got killed in 1998 as a result of shorting stocks where we saw the fundamentals crumbling. Didn't recognize the mania and paid a nasty price. Since then, by paying inordinate attention to the debt situations in companies, we have managed to extract a decent return simply by shorting only those companies that were in or heading for the bankruptcy courts.
Now, of course, the mania is subsiding and market conditions are moving through a sea-change. As a result, one need not be quite as narrow minded with respect to what one shorts, as fundamentals are(finally) starting to have real impact. Nevertheless, it will still pay well to pay attention to debt, as many, many companies are moving inexorably along that well-worn path to chapter eleven proceedings. Investors who do not pay attention to the debt picture as this mania subsides, are future road kill.
Best, Earlie |
