Beware of Leverage in All Forms Financial Stocks are Appealing but Risky

LBOs are Man-Made Disasters

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Many LBOs are man-made disasters. When the price paid is excessive, the equity portion of an LBO is really an out-of-the-money call option. Many fiduciaries placed large amounts of the capital under their stewardship into such options in 2006 and 2007.
Tags: lbo, price