Why I Hate Corporate Debt

So, I’m often asked, “Why are you always so down on corporate debt?”

My explanation always starts with – As an investor, I’m down on debt.

The quick reason is FLEXIBILITY!

The problem with corporate debt is that it brings one more stakeholder to the boardroom table. And not only that, but this stakeholder also has an entirely different agenda from everyone else.

The number one rule in banking is “Don’t lose money!” Don’t lose money on that business loan, don’t lose money on that mortgage loan, don’t lose money, period.

Bankers are highly risk-averse. They are not risk-takers. They avoid risk like the plague.

Contrast this with the great stocks of our age. Take Microsoft, Amazon and Tesla as examples.

Do you think Gates and Bezos sat around the boardroom table explaining their strategies to avoid risk? Not a chance. They talked about bold new products, outflanking the competition, and owning markets and market share. 

And so, it is no surprise that these and other great growth companies built their empires on essentially debt free companies.

That is why I look for companies with low debt-to-equity ratios when I select growth stocks to invest in. Stocks without a risk-averse corporate banker are at the table. Stocks that can make bold and sometimes risky decisions on new products, new promotions, and new markets. Companies that will take a risk to gain a significant advantage.

Debt is not the only thing to evaluate when investing in a growth stock, but it’s certainly important.

D.A. Campbell

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