Investing Lessons from Sherlock Holmes & …

It is of the highest importance in the art of detection to be able to recognize, out of a number of facts, which are incidental and which vital. Otherwise, your energy and attention must be dissipated instead of being concentrated. In this case, there was not the slightest doubt in my mind from the first that the key of the whole matter must be looked for in the scrap of paper in the dead man’s hand.

Same goes with Investing!! There is so much of incidental data, only some of it is vital.

While many investors focus on Debt/Equity as a data point and believe that ratio of less than 1.0x or 1.5x is favorable and a company having D/E of the said threshold is safe.

However, more vital are the sustainable Cash flows, which should be able to service the company’s debt (payment of interest and repayment of principal)

Also, if the company were to keep diluting its equity to maintain the threshold ratios (primarily to remain paper solvent), the ratio obviously loses its relevance eventually. Often, missed by most!!

Hope key of the whole matter when it comes to investing, especially in industries, viz. especially Infrastructure, Power, Iron & Steel and Realty must be looked in the Cash Flows.

Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014. All investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.

Leave a Comment

Your email address will not be published. Required fields are marked *

[subscription_box]