tag:blogger.com,1999:blog-28021668.post119780854895707421..comments2023-10-12T21:12:41.408+08:00Comments on Value Investment - Musicwhiz's Journey: Musicwhizhttp://www.blogger.com/profile/10950754156386935254noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-28021668.post-10836150437864327732008-07-23T00:10:00.000+08:002008-07-23T00:10:00.000+08:00Hi Ninad,Thanks for your comment, it certainly hel...Hi Ninad,<BR/><BR/>Thanks for your comment, it certainly helped me look at things from a different angle. :)<BR/><BR/>Yes, I agree that cost of equity is almost always higher than cost of debt. Hopefully the companies I own will not look around for nails just because they have hammers (the debt facility). As you said, it's not easy to make good deals when you have cash/debt to deploy.<BR/><BR/>Regards,<BR/>MusicwhizMusicwhizhttps://www.blogger.com/profile/10950754156386935254noreply@blogger.comtag:blogger.com,1999:blog-28021668.post-78991833869934710932008-07-19T09:30:00.000+08:002008-07-19T09:30:00.000+08:00Hi Musicwhiz Quoting from your blog - "In cases wh...Hi Musicwhiz <BR/><BR/>Quoting from your blog - "In cases where growth is not sufficient to justify the debt taken, then the debt should be avoided and the company should seek alternative sources of financing (e.g. equity financing)."<BR/><BR/>I would tend to disagree on this variable. Conceptually cost of equity is always higher than cost of debt. If a investment cant overcome the cost of debt hurdle rate, then funding it with equity is not the answer. The project itself needs to be given a pass. <BR/><BR/>As Munger puts it, for a man with a hammer everything looks like a nail. Similarly for managements with surplus cash or ability to leverage, everything looks like a great investment. Companies run into trouble when this happens. <BR/><BR/>Cheers <BR/><BR/>NinadNinad Kunderhttps://www.blogger.com/profile/14275940021296930028noreply@blogger.comtag:blogger.com,1999:blog-28021668.post-62774590861754069942008-06-30T17:59:00.000+08:002008-06-30T17:59:00.000+08:00Hi ginger cat,I would attribute OSIM's decline to ...Hi ginger cat,<BR/><BR/>I would attribute OSIM's decline to BOTH factors, rather than just difficult market conditions. The problem with LBO is that the company may run into problems growing the business of the acquiree company, just as OSIM has had problems turning Brookstone around.<BR/><BR/>You yourself mentioned that the stretching of debt beyond prudence gets one into trouble, whether individual or company, and that this is "subjective" and "debatable". Hence, can it not be assumed that OSIM may have taken up too much leverage onto their Balance Sheet, over and above what would constitute a "comfortable level" ?<BR/><BR/>Of course, this observation was made with the benefit of hindsight. At the time, Management's objective assessment might have been that the leverage was justified in terms of growth prospects and the integration of the business with OSIM's core. I think a further qualitative reason for purchasing Brookstone was to instantly extend OSIM's presence throughout America as Brookstone had a wide retail network in USA.<BR/><BR/>Regards,<BR/>MusicwhizMusicwhizhttps://www.blogger.com/profile/10950754156386935254noreply@blogger.comtag:blogger.com,1999:blog-28021668.post-12367867158684869932008-06-24T14:29:00.000+08:002008-06-24T14:29:00.000+08:00Osim's problems were not caused by excessive lever...Osim's problems were not caused by excessive leverage. Their problem was because of difficult market conditions. An ambitious acquisition merely aggravated their financial position.<BR/><BR/>I use an analogy of an individual. It's like buying a big house with a big mortgage you cannot afford (but hoping you can service the loan when you get promoted in your job) hoping to sell it off at a profit later. But if you cannot sell it off at a reasonable profit to cover transaction and financing costs, and if you don't get that promotion, then you are in a world of trouble. Buying the big house with a big loan in itself doesn't cause problems. But it is the stretching of debt beyond prudence (what ratio is prudent is debatable and subjective) that gets people and companies into trouble.Ginger Cathttps://www.blogger.com/profile/14063043997439694349noreply@blogger.com