For the most part, we Fools consider "debt" a four-letter word. At the right rates, debt can be a good thing when used to buy a house, finance school costs, or even buy a car. However, companies drowning in debt present investors with a definite red flag.
That's why we look for companies with sound balance sheets. Apple
Our leader here at The Motley Fool, CEO and co-founder Tom Gardner, recently interviewed Louis Zamperini. Recognized as an American hero, Zamperini was a World War II prisoner of war and is the subject of Laura Hillenbrand's new book, Unbroken. In our final part of the interview, Zamperini talks more about overcoming challenges in life and finance. The following is a lightly edited version of their conversation:
Tom Gardner: What was it like for you right after your plane crashed?
Louis Zamperini: After the crash, when I went down with the plane probably 100 feet underwater, trapped inside, impossible to move, wedged in. That was bad enough, and then the tail snapped off and the wires came around me. I said, "This is it. I am dead." Just inwardly I said, "God help me." Then the wires are around me, made it even worse or it was impossible for me to get out, even two or three men wouldn't be able to get me out of that situation to keep me alive. I cried to my God for help, and I believe that God took hold of me and drew me out of the deep waters.
Gardner: Well, I suspect that you feel that things happen for a reason in life.
Zamperini: Yeah, I do. I accept anything that happens for your own benefit, but if things are going to happen, why cry over it and why fight over it? The thing is, we accept everything and do the best we can and use it as a learning tool. The more hardships you go through, the more you learn.
That is why our generation is the Hardy Generation, because that is all they did: overcome. I tell young people,"When you have a problem, think of it this way: When you overcome that problem and lick it, you are a better person. You are more hardy." I get all these letters from the book and I always sign my name with, "Be Hardy, Louis Zamperini."
Gardner: Here at The Motley Fool, we teach people how to save and invest. When I talk to young people about it, I tell them that the best thing you can do is actually to make your first investment, and that the best result you can get from your first investment is that it doesn't succeed for you. That way, you will end up learning why, rather than congratulating yourself for your good fortune out of the gate. That lesson of accepting failure and difficulty as a challenge and opportunity to learn and improve yourself is just such a great lesson.
Zamperini: That last statement you made is great. The one about teaching overcoming; that's great, too. That is in your company policy, huh?
Gardner: Yes, it is. When you invest, you are going to definitely have periods of time like we had a few years ago, where everything goes down 50% in value. That is either the time that you cry in your soup and give up, or the time that you double down, try and learn more, and get smarter because of it.
Zamperini: That's beautiful. I like that.
Gardner: Can you talk about some of your investment policies? I understand you paid your house off pretty quickly.
Zamperini: Well, houses were pretty cheap then, but money was hard to come by. I had a house in the valley, and I added a room on to it. Anyway, we looked at houses every Sunday. We'd go out and look for open houses without really wanting to buy. Then we saw this house here in the Hollywood hills. My wife loved it and I loved it, but we weren't going to buy it.
But the broker was the son, and he said, "Well, I need $10,000 down. Nobody has got that much. Everybody loves the house. I need $10,000 to put my folk into a Lutheran home." We kept saying, "No, we don't want to buy a house." But then Universal bought my book, and I figured with that money, I finally could double my money on the house that I was living in. He wanted $10,000 down with $40,000 for the house. I called him and I said, "Well, I can't afford $40,000; I can only accept $27,000." He said, "No, no, the house is worth more than that." I said, "However, I do have $18,000 down." "Oh!" he said. So I got the house and an acre of land in the Hollywood hills for $27,000.
Gardner: Oh my. What year was that?
Zamperini: 1957. OK, I had $9,000 to go, so I worked three jobs. I got it kick-started in the Hollywood Tree Service. I did my work, public speaking, I did weeding, I did planting ivy, and I did a lot of tree work and within three years, I paid the house off. Boy, I will tell you, that was the biggest relief of my life, knowing that I own this house, and nobody can take it from me.
Gardner: There's nothing like getting out of any form of debt in life.
Zamperini: I just can't stand to be in debt. 1956 was the last time I bought anything on time. You are paying through the nose when you buy on time. Now I will tell you how I bought my car. So an automobile, I found out how much the payments are a month and how much the interest rate is, so between the car I have now and the one I want to buy three years from now, I put the money in the bank with the same interest rate. Then, when I get ready for a new car, I pay cash.
Gardner: One of the worst investments that young people make is to borrow to buy a car, which is going to lose value while they're paying interest. It's a double hit.
Zamperini: Yeah, the lender is making money, and you are losing.
Gardner: Absolutely, absolutely. One of the great things that The Motley Fool will attempt to achieve over the next 20 years is to teach everyone, particularly young people, not to borrow on their credit cards and leave it unpaid at the end of the month.
Zamperini: Yeah, some people, even members of my family, they like things. They refinance their home and get further and further in debt just to get some money to buy a pool or this or that. Then if they lose their job, wham, they've lost everything.
Gardner: That's exactly right. And you know, that gets back to the beginning of our conversation, when you said to be a leader, the first thing you need to do is be prepared for any eventuality.
Zamperini: Exactly. When you are prepared, when you go out and advance and know every crook and cranny on the hike, one of the kids will love you. When you say, "OK, just around the corner we are going to do this and that," that is leadership, but you have to go out and work for it and be prepared, like the Boy Scouts.
Gardner: Louie, I will tell you, this has been a real thrill for me. I am going to send you a Motley Fool baseball cap.
Zamperini: Hey, great! Thanks a lot. It was sure nice talking to you.