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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (5122)	10/9/1998 12:08:00 PM
From: jeffbas	Read Replies (2) of 78568

Paul, you are only partly right, in my opinion. "All the companies in its industry also have high debt levels" is an inadequate justification to consider a company. A company may have no relative disadvantage, but does it have a sound strategy? However, having debt per se is not inherently bad. What is bad is mixing a high debt load with a volatile business. I spent a career as an actuary with one of the largest life insurance companies, but have a distaste for investing in financial companies most of the time. Banks and insurance companies have net worth which is typically 5% or so of their liabilities. It takes an awfully conservative investment/loan strategy not to risk losing all of net worth every 10-20 years or so. Mutual Benefit Life was in business for over 100 years and went under because they put too much money in more speculative real estate; as did a number of name banks. Debt ridden companies in the cyclical steel industry is an industrial example; or try the airline industry as another. However, I have little issue with a Coke or a Merck having debt.

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