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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (5122)	10/9/1998 12:08:00 PM
From: jeffbas	Read Replies (2) \| Respond to of 78565

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.

To: Paul Senior who wrote (5122)	10/9/1998 1:28:00 PM
From: Ron Bower	Read Replies (1) \| Respond to of 78565

Paul, To expand my comment. When I say I would avoid companies with debt, I'm referring to those companies that might be forced to borrow working capital should we enter a recessionary period. I want to see substantial working capital, the debt structured to long term, and a respectable debt ratio. If this is the case, the low interest rates would be preferable to a company issuing stock to finance activities. As to the banks calling wanting people to refinance home mortgages - IMO this will cease. With an economic slowdown, the banks will be tightening loan policy and there will be a wider spread on deposit/loan rates. My reasoning - The non-secured consumer loans (credit cards), highly leveraged mortgages on over valued real estate, highly leveraged corporate debt, International loans to emerging countries, and loans to hedge funds and brokerages. All of these depend on a robust economy. The first domino has fallen and the rest are teetering -g- JMHO, Ron