Consolidation is good. Huge debts means high risks. (Always a balance)

I am a conservative person. (Nope, nothing to do with wearing something less sexy etc. Haha) Conservative with my views about money. If I can afford a RM100k car, I would think for a very long time, evaluate all cars and then buy a RM80,000 car instead. I think my parents gave me this kind of ‘training’ since young. Same applies to buying a home. The home in Penang? RM123k even though my wife and I agreed that the budget would be up to RM200k. (15 years ago lah). The condo which I upgraded to from my first apartment in Penang? We were ready to sell my first apartment if we really could not afford the second one. Yes, the calculations after calculations took 2 months. Here’s that story: My first condo buy – Regency Heights  Anyway, rather than looking at it as a sign that I would never become a billionaire in another 100 years,I prefer to look at it positively. I should be able to provide enough for my kids to complete their studies. Then, my wife and I can have vacations. Not too bad lah. Retire in hometowns and working in KL today

When I buy shares in listed companies, I would only look at those with minimal debts instead of those which has growing debts year after year. That’s why I really dislike online companies which is still not profitable after 8 years? Internet stocks? However high, watch for profitability first  Personal preference lah, no need to debate whether more debts also mean higher growth probability… There’s one company which is also trying to reduce its debts so that it can strengthen its balance sheet for potential future deployment of those resources into identified projects and investments. Here’s the full article about E&O Berhad. TheStar: E&O sells Lone Pine Hotel Lone Pine Hotel is a very nice hotel. It fronts the beach and the cost to stay per night? I would say not too bad actually. Do refer to image. As per E&O’s announcement to Bursa Malaysia, the buyer is duty-free goods trader Langkawi Saga Shopping Centre Sdn Bhd and liquor and cigarette wholesaler Lubritrade Trading Pte Ltd. (Langkawi Saga, I have shopped there many times before. Wow.. cash-rich company)

Coming back to the thought that more debts may mean the company is aggressively growing and thus potentially the capital appreciation in terms of share price should be higher. Potentially, true. However, if the company has cash in hand, it also meant that the company can take advantage of potential deals in the future. This is especially when the market is slow and everyone wants to sell. Anyway, not all business deals would use the cash reserves. Even for companies with lots of cash in hand, it may still choose to take up debts instead because the cost of debts is still not that high actually. Especially when compared to the potential returns. Low returns? Use cash reserves lah. Happy staying at Lone Pine Hotel or buying shares that you love ok. Cheers.

written on 17 June 2017

Next suggested article: IKEA Penang? It’s really coming – 24 months away

2 thoughts on “Consolidation is good. Huge debts means high risks. (Always a balance)

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