The Memo by Howard Marks The Impact of Debt
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May 8, 2024 Exploring the impact of debt and leverage on survivability, emphasizing optimization over maximization. Discussing how leverage can amplify gains and losses in investments, cautioning against underestimating risks. Highlighting the importance of balancing borrowed capital for long-term success and prudent leverage strategies for sustained investment prosperity.
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Shinisei Businesses
- Centuries-old Japanese businesses, "shinisei," have survived countless calamities.
- Their secret? Holding tons of cash and no debt.
Debt and Risk
- Debt creates the possibility of default, foreclosure, and bankruptcy.
- Debt's impact depends on its size relative to the enterprise and potential profit/asset fluctuations.
Debt and Volatility
- Higher debt narrows the range of volatility one can withstand.
- With no debt, you're likely to survive most volatile events, according to Morgan Housel.