How My Fear of Debt Became My Greatest Investment Tool
An unlikely advantage in investing
My view towards debt is similar to Morgan Housel’s.
We both hate it.
The people who value flexibility and optionality tend to be the ones who shun debt like the plague.
This is because as debt increases, we narrow the range of outcomes we can endure in life.
When we take on debt, we reduce the number of volatile events that we can handle.
Someone with a debt commitment may not be able to:
Quit a toxic job
Explore an alternative career path
Manage unexpected health crises
The list goes on.
With debt lurking, our options to explore what life has to offer diminish.
Like investments and personal finance, debt is very personal.
While I can handle the volatility with investments, I can’t handle the volatility that comes with debt.
The best types of businesses
The longest enduring businesses (those that have gone through wars, disasters, and earthquakes) share a common trait - they are cash rich with little to no debt.
These are the best types of businesses to invest in.
Some cash rich companies with little to no debt:
Meta Platforms (META)
Alphabet (GOOGL)
Lululemon (LULU)
Salesforce (CRM)
It’s not surprising that these companies have been around for decades.
They have survived volatile events like the Covid pandemic, Asian financial crisis, and dot com bubble.
Similar to humans, having little to no debt allows these companies to survive tough times.
Rather than looking for the next big thing, these are the type of companies we want to invest in.
Conclusion
Everyone has their own personal tolerance when it comes to debt.
There’s good debt (mortgage), and bad debt (credit card debt).
Life is wildly volatile in itself.
Why create more volatility for ourselves by taking on unnecessary or excessive debt?