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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (37909)5/16/2010 10:14:28 AM
From: E_K_S1 Recommendation  Read Replies (2) of 78482
 
Hi Paul -

RE: My new Buffet rule. "LT debt s/b no more than 3x revenues (my new Buffet rule)"

I recently finished reading his book titled "Warren BUFFET and the Interpretation of Financial Statements - The Search for the Company with a Durable Competitive Advantage" last month. books.google.com

He has a section in it regarding company debt.

Basically he prefers companies with little long term debt and discusses several reasons why this can burden a company and their profitability.

As with any rule, there are exceptions but I wanted to make sure that my long term holds reflected this criteria. Over on the "SI Fundamental Analysis" Board there is a posting called the BUFFETT’S COMPANY ANALYSIS TEMPLATE. It summarizes several of Buffets analysis criteria similar to what his book does in much more detail.

Message 26423391

There is going to be swings from deflation to inflation with the huge amounts of Global debit recently created (ie 1 Trillion backstop of the Euro last week). A company with a large debt load could be significantly affected at the margin with ever increasing interest rates. It's better to be safe and sell those companies that utilize large amounts of debt (compared to their sales) to grow their company. It's an added risk in this environment IMO that should be avoided.

I now scan all my new buys and potential sells with this simple financial rule - "LT debt s/b no more than 3x revenues".

EKS
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