Monthly Archives: July 2015

Investing lessons from the Greek Crisis – 6 July 2015

Posted on July 6th, 2015 in Stock picking

Explaining the Greek Debt Quagmire

The Greek government-debt crisis of Jun 2015 has its roots more than a decade ago, in an uncompetitive economy, huge borrowings and an over-generous welfare system that was stubborn to restructuring. It got worse when the Greek government admitted to under-reporting its debt level and deficits. In 2012, Greece’s government had the largest sovereign debt default in history and despite an attempt by sovereign lenders to instil discipline into its heavy spending, missed an IMF €1.6 billion loan repayment on June 30, 2015. Today, it risks being kicked out of the European Union, having amassed an estimated €330 billion in debt.

It is timely we draw lessons as share investors from the Greek crisis, using parallel ‘metaphors” to bring our point across.

1)      Choosing a bad company – Greece always had a weak economy.  Adding Greece into the collective long “portfolio” of EU countries, doesn’t make sense.

2)      Pouring good money after bad – This is not the first time Greece has defaulted on its loan. Yet, Greece continues to get bailed out.

3)      Realise that you can’t change a company. You take them as they are – Greece continued to run like Greece, on a welfare system that cannot be sustained. It is strange that its lenders think they can solve Greece’s problems. No, Greece has to solve its own problems.

4)      Realise you are really investing in the quality of the company’s management – Greece is run by bad managers. Enough said.

5)      If you can’t cut your losses early, you’re screwed – Now, all the lenders to Greece feel pretty screwed. Maybe they can demand some territories from Greece to offset the loan, but that will be just a political disaster.

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