Banking and Private Credit
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- เผยแพร่เมื่อ 6 เม.ย. 2023
- Kipp deVeer, Head of Credit at Ares Management, on the effects of the banking crisis on the private credit field.
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shadow banks ftw
Call me nostalgic, but there was a time when businesses funded expansion through their own positive cash flow, not borrowings. New businesses grew that way and their founders or owners stuck around for the long term. Now the shit has hit the fan for those who relied too much on debt and wanted to take their money and run via an IPO. When Warren Buffett bought an old haberdashery in Omaha in the early 1960s, he built it from profits and good management to the behemoth Berkshire Hathaway is today. He will probably die at his desk. That's what's called sticking with it for the long term. And he invests mainly in other businesses who do the same. 95% of the time he makes the right call so it's worth revisiting his golden rules of what makes a business great and profitable through all the cycles of markets:
1. The owners are the managers and they are there for keeps. They know what works.
2. They generate free cash flow in excess of 10% of revenue.
3. They have products or services that are insensitive to market fluctuations.
4. They sell to everyone, not to a narrow market.
5. They use their cash to expand, not buy back stock.
If you apply these criteria in investing in stocks, you cannot go wrong.
Berkshire Hathaway was an overvalued stock and a failed business, he then gained control of blue chip stamps and used float to cover the loss. Buffet used insurance float later on, which is the same thing. If you think about it, Insurance deposit are loans from insurance clients, he used the loans to invest, similar to private credit buying CLOs, they are both risky. If it is a good business, he wouldn’t have to shut the sewing machines down.
Buying back stock when it is undervalued and selling when it is overvalued is a no brainer, warren buffet did that too. You got F in finance?
Unfair competition, these financial companies need to be regulated like a bank too if they’re going to lend money like a bank regardless of the funds coming from depositors or investors.
*Making money is an action, but “growing money is wisdom”. I found this out a week ago after a $15,000 in return on my €5,000 investment in 7 days*