David Carr writing in today’s New York Times [1]
reminds us of the core fundamentals of successful personal finance:
- Have a diversified portfolio,
- Don’t buy more house than you can afford,
- Don’t take on more debt than you can support, and
- Don’t trade on margin.
These same fundamentals apply to running a business successfully:
- Sizing a proper portfolio – all businesses need a portfolio of products or services to avoid over dependence on any one offering or customer. The trick is to build out your portfolio without straying far from your core expertise or markets.
- Trees don't grow to the sky – pursuing rapid growth for its own sake has caused great difficulty for many companies. Focus instead on affordable, sustainable, profitable growth.
- Debt is a double-edged sword – match funding fixed assets with debt is generally okay as long as you don’t violate #2. On the other hand, paying operating expenses with borrowed money is like buying breakfast at McDonald’s with a credit card.
- Trading on margin is asking for trouble – too many businesses have been bought with borrowed money that cannot be supported by the acquired businesses. Trading on margin is like sky diving without a parachute: the ride is beautiful but the sudden stop will likely kill you.
Stick to the fundamentals and live to work another
day.
[1] This Just in: The Market Is Still Dead at http://www.nytimes.com/2009/02/16/business/media/16carr.html
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