Studying Equities

The financial crisis of 2007-09 was quite unforgettable. It became easy to see the connections between Wall Street and people’s livelihoods half a world apart.

Up until then, I had taken no interest in stocks or bonds. I had no money, and the investing industry seemed to me like a casino for people who cared for nothing more than piling up money, if all went well.

Well, things were going terribly, but in the middle of all that wreckage you’d hear about one man swimming against the tide while being hailed as some kind of savior. That man was Warren Buffett.

My curiosity was aroused, so I proceeded to read up on the guy. It didn’t happen overnight, but it’s fair to say he opened a vast new mental latticework for me.

Although there’s much I could write on his philosophy, this time I’ll stick with a slice of a rule of thumb we can find in the writings of Buffett’s teacher Ben Graham: when looking for companies unburdened by debt, favor the ones with a ratio between debt and net equity of less than 0.5.

It makes sense: if all a man has amassed his whole life is $100,000 but he owes $85,000 to the bank – a ratio of 0.85 –, it will likely be a long while before he’s paid his debt down and is able to comfortably grow his net worth.

So I took to looking at these numbers from several quasi-randomly chosen companies listed on the Brazilian Stock Exchange, over 10 years for each issue whenever possible.

There are many details regarding criteria for picking the right balance sheet lines to yield the total debt I don’t yet fully grasp. This spreadsheet is where I compile the numbers.