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March 27, 2008
The Future of Investing: A Leverage Discount
Had interesting conversations today with a number of people about leverage in investing, and its role and value in future. The consensus: Leverage will carry a lower multiple going forward, with it important to determine the source of returns, and applying decreasing multiples depending on the degree to which leverage is a main cause.
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Well I am not sure what you exactly wrote there but this is a worthy topic. One would think over the longer term, the removal of leverage from the system will benefit those that don't now nor in the past have used high levels of leverage. In the debt markets, people used leverage and it resulted in smaller spreads...one would think the risk spreads in equity markets would also start to rise and consequently people will get paid for taking more risk. i.e. it should be easier to make a buck even though you are not levered 42x.