Debt Paydown Turnaround

Buys by the recipe we back-tested for the turn in a company's debt. What is tracked is net debt, meaning financial debt minus cash: first it rises for three consecutive fiscal years, at the peak it exceeds either one year of earnings before interest, taxes, depreciation and amortisation or one fifth of total assets — and after that it falls for at least two consecutive years by at least 10 percent in total. Only debt cut under the company's own steam is bought: anyone who retired debt by issuing new shares or by selling off half the business does not enter the portfolio. Banks, insurers and financial services companies are excluded, because there debt is the business model. Only shares our own deep-dive analysis rates green are bought — yellow or no analysis at all is not enough. New positions are added once a month. Selling happens without a fixed holding period, namely as soon as a share drops off the list because its net debt rose again in the latest fiscal year. That is exactly the exit that produced the best figure in the back-test: 12.20 percent per year against 11.24 percent for the S&P 500 including dividends — held for a fixed twelve months it would have been only 10.42 percent, and therefore less than the index. If the list holds no green-rated share, the portfolio stays in cash.

This portfolio buys shares.