Book Excerpt January 19, 2010, 2:18PM EST

Book Excerpt: Thriving in the New Economy

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New Economy Strategy

Through this entire crisis, starting at the onset all the way through the advance phase in September, I made sure Invemed Associates stayed highly liquid. We made sure our credit and our cash had jumped big time. It stayed at that level because we have significant investments, either mine or the firm's, and if there was an investment opportunity we would have a chance to participate. But more importantly, we made certain that we were not dependent on the banks for whatever capital means we had.

Hopefully the wickedness of this entire period is going to make it easier for people to be mindful of the fact that leverage needs to have limitations. The guy who rents you money expects to get his money. We are now learning how much damage has been done. It is like a person in a head-on collision—the recovery is going to take longer than he thinks. Our eyes are now wide open. I am not sure I agree with this surge of paper. I am not sure I would not say, "Wait a minute, the idea is not to get this thing back up where it was. The idea is to sort of get it back up on a sound footing, and then go from there.'' I would feel a lot better about that.

Debt has its place. That said, I hope all of us understand the risks of excess leverage, and of excess borrowing. When you live in such a way that your survival depends on the sun shining each and every day, you are living on the edge of a very unrealistic expectation.

Investing Criteria

I am always looking for opportunities. One person's pain is another person's pleasure. We are looking for companies with very strong balance sheets, with good and protectable cash flows. Companies whose management has demonstrated the willingness or the desire to have some form of shareholder reward—hopefully dividends, but maybe buybacks. We are looking for companies that can sustain themselves and their capital needs. Because I think now we all know that the banks have been badly wounded.

Many of them are now so-called penny stocks. But that's okay. I am looking for companies with balance sheets that are so strong that the cash they have is close to or greater than the price of the stock. One of the companies we invest in is called SourceForge. That is the old VA Linux. Then there's the textile company called Unified, for which I am a member of the board. I am hopeful that we will be able to get something done there. We certainly have a good management team in place at Unified. Financially, we have our back to the wall; we have some significant debt, but the cash flow is good. We are keeping the facilities in tip-top shape.

Regrettably, the textile industry is moving offshore—not entirely, but a significant percentage that impacts it. Other sectors that I keep an eye on are education and medical technology, or biotech devices. I also look at health care stocks in general and some retail companies. I always have my eyes open for things. I have more time now to contemplate an investment than I did before because the markets are not moving that quickly.