To return to a concept I discussed in the first column I wrote for RealMoney, Valuing Financial Slack in the Steel Sector, banks with a high degree of leverage relative to the overall riskiness of their assets and liabilities possess little in the way
of financial slack.
My first article on RealMoney dealt with the concept
of financial slack, and why it is particularly valuable for cyclical companies not to take on as much leverage as possible.
Not exact matches
The time to buy a company in any industry is when it is out
of favor; as a matter
of risk control (and humility) the companies to buy when an industry is out
of favor are those with
financial slack.
One
of the keys to this is insisting that the companies that I invest in possess «
financial slack.»
I've been toying with the idea that maybe there would be a way to create a crisis model off
of the
financial sector and its clients, working off
of a «how much
slack capital exists across the system» basis.
Having spent over 20 years
of my career in a seasonal small business, I've learned that taking a strategic approach to managing the business and business finances will not only keep your business cash flow positive during the
slack times, it will help you stay focused on your business» long - term
financial health when it's flush with cash.
If one
of you goes through a
financial hardship, can the other pick up the
slack?
Better to manage such that you can buy - and - hold for moderate lengths
of time, with enough
financial slack to tide over rough patches in the market.
This is not a time to be
slack in taking care
of potential
financial disasters (such as the loss
of a spouse and their income), but rather a time to take care
of life insurance needs.
This paints a different picture
of housing reliance on family, beyond the clichéd stereotype
of a
slacker twenty - something living at home and asking for
financial help.