The writer is co-founder and co-chair of Oaktree Capital Management and author of ‘Mastering the Market Cycle: Getting the Odds on Your Side’
It is obvious that all else being equal, people and companies that are indebted are more likely to run into trouble than those that are not. It is the presence of debt that creates the possibility of default, foreclosure and bankruptcy.
Does that mean debt is a bad thing and should be avoided? Absolutely not. Rather, it is a matter of whether the amount of debt is appropriate relative to the size of the overall enterprise and the potential for fluctuations in the enterprise’s profitability and asset value.
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