Some investors hold physical stock certificates; pieces of paper with their name on them that represent their ownership in a corporation. Other investors are invested in a DRIP, or dividend reinvestment program, and their shares are noted by the company’s registrar in an electronic journal; this is known as “book entry”. In both cases, the company can quickly and easily access the total number of shares you own and / or contact you directly.

The most popular holding form for most investors, however, is through a brokerage account or asset management account. When you buy shares of Coca-Cola or The Washington Post through your broker, they aren’t physically sitting in a vault with your name on them. Instead, the broker has them registered in its name; that is, Coke won’t know that you own the shares, it only sees that Schwab or Fidelity owns X number of shares. The brokers, in turn, track who owns what internally.

To help you understand the traits of an excellent business, I’ve put together some resources that will give you an idea of what you should look for in a stock, and, just as vital, why it is important. Armed with this information, over time you’ll be more likely to build a portfolio of wealth creating assets that can provide financial security for you and your family.

An excellent business earns high returns on capital with little or no debt

There seems to be little doubt, based upon the evidence, that it’s easier to build a large net worth through value investing – that is, the disciplined purchase of stocks, bonds, mutual funds, and other assets that appear to be selling at a substantial discount to a reasonable person’s estimate of intrinsic value (or “the real” value.) Think of it as if you knew a local car wash had gold buried underneath it. The proprietor might be asking $800,000 for the land and enterprise, but you know full well that you could pay substantially more, not only owning the business, but also selling the gold you dug up on the open market. Thus, you had reason to believe that it was being sold for far less than its intrinsic value.
The one major shortcoming of this approach is that an asset bought cheap must be sold when it reaches intrinsic value unless it is an excellent business. As Charlie Munger has pointed out, over long periods of time, the rate of return which an investor earns is likely to be very close to the total return on capital generated by a firm, adjusted for dilution in shares outstanding. Thus, you are likely to do better paying fair value for a business that can reinvest its capital at high rates of return – say, over 15% to 20% per annum – than buying a mediocre business trading at a small discount to its liquidation value.
For more information, read Business Like Investing: Thinking Like an Owner; on the second page of the article you’ll find information on why return on capital matters.

An excellent business has durable competitive advantages

If you had unlimited funds, do you really believe that with the best pick of any manager in the world, you could unseat Coca-Cola as the undisputed leader in the soft drink industry? How about Johnson & Johnson with its myriad of patents, trademarks, and brand name products? The reason these businesses are able to succeed so well is that they have durable competitive advantages – things that their competitors can’t reproduce.

Sometimes these advantages are easy to spot – as is the case of Coca-Cola, which is the second most recognized word on Earth. However, it is possible for them to remain buried. One of the secrets to the phenomenal success of Wal-Mart is that Sam Walton built a distribution system with logistical capabilities that allowed him to lower the transportation costs of moving merchandise to his stores, allowing him to make far more profit than competitors selling at higher prices. He and his fellow shareholders won from the increased income while consumers won from the lower prices. These forces worked in combination with one another, reinforcing and accelerating the results so much that the tiny five-and-dime grew into the largest retailer the world has ever seen.

When you buy into a company through the purchase of its common stock, try to identify the durable competitive advantages it has that could stand up from attack by competitors and market forces such as outsourcing and increased globalization.

An excellent business is scalable

When businesses are highly successful, one of the key ingredients more often than not is scalability. Take American Eagle Outfitters, which has one of the best long-term investment records over the past decade. Why was it successful? Target? Wal-Mart? McDonald’s? Coca-Cola? Pepsi? Microsoft? All are excellent businesses in part because they had products or services that could be replicated in cookie-cutter fashion very, very rapidly.

Think about it. The McDonald’s in Hong Kong is very much like the McDonald’s in Chicago. And New York. And Southern California. By having the menu, layout, fixtures, and technology packaged in a way that restaurants could be rapidly opened, it made it easier for the chain to roll out across the United States and world. Coupled with its relatively high returns on equity and the cash provided by the franchisees, which footed the bill to build a huge portion of the overall business, it’s not hard to see why the shareholders might consider Ray Kroc as a hero.

The price still matters …

For those of you too young to remember the Nifty Fifty, this idea of buying excellent businesses was taken to such ridiculous extremes in the 1960’s that investors paid upwards of sixty and seventy times earnings! To contrast, a normal price-to-earnings ratio on Wall Street is considered fifteen; that is, for every $1 in per share profit a company generates, it would trade for $15. It didn’t take a genius to see that even if the business was all it was cracked up to be, at those prices, it would be virtually impossible to earn a satisfactory long-term rate of return.

That’s why you need to take a moment to read Price is Paramount to see an illustration of how lower growth rates can actually lead to higher rates of return in certain circumstances.

What’s a new investor to do? Let’s take a look at a few of the options now available if you want a simple, easy to understand way to track your investments.

The Online Options

Most top-tier financial institutions now offer tracking services online. Just to name one: Bank of America now has a feature that allows clients enter the username and password for their other accounts at institutions throughout the world, including retirement and brokerage accounts, and the Bank of America website will pull all of the data together on one screen so you can see your entire financial picture. You can even create manual entries to track loans from family members or other items that don’t show up on a regular statement.

The same is true at a start-up called Mint.com, which has reportedly won backing from Microsoft. Other brokers, such as Charles Schwab and E-Trade allow clients to review years of past records online in free, downloadable PDF format.

If you have only a handful of accounts and just want to know where you stand each month, these can be great choices that are, in most cases, completely free as part of your regular banking or investing relationship.

Using Microsoft Excel to Track Your Investments

A popular option among many investors is to use Microsoft Excel to track their accounts. By creating different tabs in a workbook, you can keep records for each individual account, and then aggregate them together, run different scenarios, and basically manipulate the figures any way you need to get an idea of how your financial life is going.

Using Excel to track your investments does require working knowledge of the program, but it is used in virtually every office in the world, there are millions of pages of books dedicated to teaching beginners how to use the program, and you likely have family members that can spend an afternoon showing you how to setup your file. For most people, it’s the best, and easiest, choice now that Microsoft Money has been removed from the picture.

Using QuickBooks to Track Your Investments

My personal favorite is the use of QuickBooks to track investments. We use it at several of the new companies we established in 2009, and it allows us to record anything that we need to in a matter of a few clicks, including really complicated stuff such as advanced stock option trades. The downside is that it requires a thorough understanding of accounting debits and credits, otherwise it could be overwhelming.

QuickBooks does offer a free online edition for beginners that you can download and begin using right away if your needs are simple. For most people or small businesses, it just may fit the bill – and at a price tag of $0, it certainly helps your budget.

Quicken and Other Options

There are several other options, including Quicken (some people love the program – I was never that into it but that is entirely personal preference) to track your investments. In an Internet-based world, it’s not difficult to find reviews of software packages so you can find one that works for you.

Working Capital is the easiest of all the balance sheet calculations. Here’s the formula:

Current Assets – Current Liabilities = Working Capital

One of the main advantages of looking at the working capital position is being able to foresee any financial difficulties that may arise. Even a business that has billions of dollars in fixed assets will quickly find itself in bankruptcy court if it can’t pay its monthly bills. Under the best circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditor – all of which result in a lower credit rating. A lower credit rating means banks charge a higher interest rate, which can cost a corporation a lot of money over time.

Companies that have high inventory turns and do business on a cash basis (such as a grocery store) need very little working capital. These types of businesses raise money every time they open their doors, then turn around and plow that money back into inventory to increase sales. Since cash is generated so quickly, managements can simply stock pile the proceeds from their daily sales for a short period of time if a financial crisis arises. Since cash can be raised so quickly, there is no need to have a large amount of working capital available.

A company that makes heavy machinery is a completely different story. Because these types of businesses are selling expensive items on a long-term payment basis, they can’t raise cash as quickly. Since the inventory on their balance sheet is normally ordered months in advance, it can rarely be sold fast enough to raise money for short-term financial crises (by the time it is sold, it may be too late). It’s easy to see why companies such as this must keep enough working capital on hand to get through any unforeseen difficulties.

The One-Paragraph Test

The test that these two men applied was roughly the same. According to sources, Peter Lynch used to start an egg timer when on the telephone with financial analysts and traders, for forcing them to explain the basic premise of an investing idea in less than a minute. Buffett recommends that you write out a short paragraph saying something along the lines of, “I am buying $10,000 shares of Company XYZ at $25 per share because I believe (insert reason here such as profit will grow twice as fast as the current price-to-earnings ratio, hidden assets are on the balance sheet, there was a management change for the better, valuation is too low, etc.) Then, monitor the situation, always mindful of your basic thesis.

The practical result is the meat, or substance, of your argument of the matter is separated from the water down nonsense. Too often, stockbrokers and financial journalists spew dozens of facts they have regurgitated from a 10k or annual report. So many facts obscure the truly important figures such as sales growth, profit margins, expected capital expenditures, expected depreciation, and return on equity. Investors instead become bogged down in reading about a $12 million transaction at a firm generating $20 billion in sales. In a vast majority of cases, information of that kind isn’t particularly or necessarily relevant.

Avoiding Multiple Break Points

Another major advantage of the “Kiss” approach is that you factor in basic probability theory into your decisions. Which would you rather have: a stock that has a 65% change of doubling in the next five years or a stock that has a chance of quadrupling if eight different events all take place (perhaps a business license in a new state, a new factory built, etc.), each event having a 90% probable success rate? The latter, believe it or not, has an approximate 43% chance of coming true – much worse odds than the former option! With more links in a chain, you have a greater probability of something going wrong. If a stock could go up 1,000% but for it to do so, the labor unions must drop demand, fuel supplies must collapse, a bankruptcy court must force a competitor to pay its promised pension obligations, and new management to come in and cut stock option expenses, you are probably going to be disappointed. hx2kutzbs4

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The SIPC does not protect investors against losses from their investments. All it does is replace many of the investments held in their account if their broker or financial institution goes bankrupt. That’s it. If you owned 500 shares of General Electric prior to a bankruptcy, all you’re going to get is 500 shares of General Electric in a new brokerage account at the institution of your choice after the bankruptcy is sorted out by the SIPC staff. It’s that simple. In the meantime, GE might be up, it might be down, or it might have gone nowhere.

It’s important to understand what the SIPC does not cover. According to the official web site, “SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons,” They also go on to say:

When SIPC gets involved. When a brokerage firm fails owing customers cash and securities that are missing from customer accounts, SIPC usually asks a federal court to appoint a trustee to liquidate the firm and protect its customers. With smaller brokerage firm failures, SIPC sometimes deals directly with customers.

Investors eligible for SIPC help. SIPC aids most customers of failed brokerage firms when assets are missing from customer accounts. (A list of ineligible investors may be found in the fourth question in the next section of this brochure).

Investments protected by SIPC. The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

Terms of SIPC help. Customers of a failed brokerage firm get back all securities (such as stocks and bonds) that already are registered in their name or are in the process of being registered. After this first step, the firm’s remaining customer assets are then divided on a pro rata basis with funds shared in proportion to the size of claims. If sufficient funds are not available in the firm’s customer accounts to satisfy claims within these limits, the reserve funds of SIPC are used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $100,000 for cash claims. Additional funds may be available to satisfy the remainder of customer claims after the cost of liquidating the brokerage firm is taken into account.

How account transfers work. In a failed brokerage firm with accurate records, the court-appointed trustee and SIPC may arrange to have some or all customer accounts transferred to another brokerage firm. Customers whose accounts are transferred are notified promptly and then have the option of staying at the new firm or moving to another brokerage of their choosing.

How claims are valued. Typically, when SIPC asks a court to put a troubled brokerage firm in liquidation, the financial worth of a customer’s account is calculated as of the “filing date.” Wherever possible, the actual stocks and other securities owned by a customer are returned to him or her. To accomplish this, SIPC’s reserve funds will be used, if necessary, to purchase replacement securities (such as stocks) in the open market. It is always possible that market changes or fraud at the failed brokerage firm (or elsewhere) will result in the returned securities having lost some – or even all – of their value. In other cases, the securities may have increased in value.

How Long Will It Take to Get Your Investments Back?

The SIPC goes on to say, “Most customers can expect to receive their property in one to three months. When the records of the brokerage firm are accurate, deliveries of some securities and cash to customers may begin shortly after the trustee receives the completed claim forms from customers, or even earlier if the trustee can transfer customer accounts to another broker-dealer. Delays of several months usually arise when the failed brokerage firm’s records are not accurate. It also is not uncommon for delays to take place when the troubled brokerage firm or its principals were involved in fraud.”

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What you get when you pay for a full service broker

With a discount broker, you are simply paying to get your trades executed. For those with experience, the ability to analyze financial statements, and an understanding of businesses, this is an ideal arrangement. You just need someone to place the trades you order. For those without any financial experience or who want the comfort and security of handholding – and just as importantly, don’t mind paying for it – a full service broker can be worth the cost.

Although services and products are not fully uniform and costs will vary from firm to firm, typically you should want some or all of the following from your full service broker:

Perhaps the biggest benefit for someone without experience is the opportunity to have a reputable firm guide you through the process. Although it is highly probable that the fees will cut into your returns, you may be better off in the long run because a good broker can hold your hand through turbulent markets, helping you to avoid mistakes such as selling at market bottoms or buying during speculative bubbles.

That is, of course, if you can resist the temptation to bail. It’s amazing how many investors, who are the first to admit they don’t know hide nor hare about the market, will call their broker and complain about a few percentage points drop. Just last week, I was chatting with a financial representative from a major U.S. bank in his office and he confessed that when his client accounts were up more than 20% last year, no one called. Yet, a 4% drop in the broader markets caused, no joke, what he estimated were 250 calls to his office. That is madness. As long as you have a reputable firm with a proven history of good, long-term results, stay the course.

An alternative to full service brokerage firms

There is one alternative to full service brokers that is particularly attractive if you don’t have a lot of capital to invest or you are primarily interested in buying and holding stocks for the long term (ten years or more). You aren’t likely to hear about them because there really isn’t a motivation as they don’t produce profits for any brokerage house.

It’s called a direct stock purchase plan or a dividend reinvestment plan. Basically, these low-cost plans allow you to buy shares directly from a company, paying only $1 or $2 in commissions through optional cash payments or regular, recurring withdrawals from a checking or savings account. Every quarter, you’ll likely receive a statement detailing the reinvested dividends, purchases, sales, stock splits, or any other information that resulted in changes to your account.

Put together enough of these plans, and you have a simple, cheap way to build equity in some of the biggest names in the world – Coca-Cola, General Electric, Bank of America, Home Depot, Wal-Mart, etc.

Your Level of Freedom is Closely Tied to Your Level of Debt

An excessive debt level is the life equivalent of handcuffs. One of the biggest financial dangers for young adults is taking on too many “bargain” deals such as zero-down financing, no payments for twelve months or other similar gimmicks offered at furniture stores, home improvement retailers and automobile dealerships. Often, they are deceived by the ease of credit and instant gratification of purchasing without taking the money out of pocket today. Sooner or later, however, they are going to end up paying the cost of the items and possibly much more in interest.

Teach your teen to focus on the cash flow impact of a major purchase and to avoid recurring financial commitments at all cost. A young adult with a moderate lifestyle consisting of only a cell phone bill ($50), car payment ($275), insurance ($100), and rent ($500) is looking at monthly outflows of $925! In other words, $11,100 of his or her annual income goes to merely maintaining a car, phone and roof over their head. After factoring in living expenses such as clothing, gas, cable, and food, it becomes clear a young adult in this position probably doesn’t have a lot of cash to spare if he or she has any ambition to build an investment portfolio, save for a down payment on a house or go to graduate school (for smart strategies on saving, read Pay Yourself First and 7 Rules of Wealth Building).

Avoid Credit Card Debt Above All Else

Credit card debt is brutal. If a young adult is making 4% on a passbook savings account but paying 20+% interest on his or her credit card balance, it is costing them 16% for the right to earn 4%. This is one of the stupidest things he or she can do. Instead, they should take their available resources and pay off the balances, only investing after they have extinguished double-digit rates from their life forever. Other debt, such as student loans, mortgages, etc., depend upon an individual’s specific circumstances. For help with deciding which debt must go and which can stay, read Pay Off Your Debt or Invest?.

Open an IRA and Contribute to it as Young as Possible

The day your teenager turns eighteen, he or she should open an IRA. In Six Steps to Retire Rich, I point out that a 40 year old investing $20,000 a year for retirement will end up with only half of the assets as a 21 year old who invests $5,000 a year. Even the smallest savings can turn into a respectable fortune if given enough time.

Choose Your College Wisely

In most cases, there is very little difference between a $30,000 private college and a $12,000 state university. What matters is what you do with your degree, not the name attached to it (except in highly-specialized fields such as law or medicine). Strapping yourself with an extra $64,000 in debt can seriously change your plans for life. Several months after graduation, you will be forced to make your first student loan payment. This could result in taking a sub-par job for the sake of an income at the expense of a better opportunity later.

Beware the Small Foxes

It’s been said that small foxes spoil the vine. The financial success of every young adult is largely determined by their mundane, day-to-day decisions. If he or she purchases a $500 television, they’re likely to go to several different stores, compare prices, and find the best bargain. Without thought, however, they may spend $50 at a restaurant, $5 at the gas station buying a coke and newspaper, $10 at the movies, $85 for a sweater at Banana Republic, $20 for a candle, $30 for a book, $5 for a drink at Starbucks… you get the picture. Those small expenses are fine by themselves, but over time they add up to significant amounts. Without knowing it, a young adult in this situation has unknowingly been spending his or her millions $1 at a time. By cutting only $3 a day and investing it, a young adult can be a millionaire by retirement.

Know the State of Your Flocks – Use a Software Program to Track Your Finances

King Solomon, the wealthiest man in history, once said, “Be diligent to know the state of your flocks, for riches do not endure forever”. Personally, I prefer Microsoft Money for the task. It is inexpensive, easy to use, and can automatically download stock and mutual fund quotes from the Internet, giving you up-to-date account balances.

The SIPC does not protect investors against losses from their investments. All it does is replace many of the investments held in their account if their broker or financial institution goes bankrupt. That’s it. If you owned 500 shares of General Electric prior to a bankruptcy, all you’re going to get is 500 shares of General Electric in a new brokerage account at the institution of your choice after the bankruptcy is sorted out by the SIPC staff. It’s that simple. In the meantime, GE might be up, it might be down, or it might have gone nowhere.

It’s important to understand what the SIPC does not cover. According to the official web site, “SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons,” They also go on to say:

When SIPC gets involved. When a brokerage firm fails owing customers cash and securities that are missing from customer accounts, SIPC usually asks a federal court to appoint a trustee to liquidate the firm and protect its customers. With smaller brokerage firm failures, SIPC sometimes deals directly with customers.

Investors eligible for SIPC help. SIPC aids most customers of failed brokerage firms when assets are missing from customer accounts. (A list of ineligible investors may be found in the fourth question in the next section of this brochure).

Investments protected by SIPC. The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

Terms of SIPC help. Customers of a failed brokerage firm get back all securities (such as stocks and bonds) that already are registered in their name or are in the process of being registered. After this first step, the firm’s remaining customer assets are then divided on a pro rata basis with funds shared in proportion to the size of claims. If sufficient funds are not available in the firm’s customer accounts to satisfy claims within these limits, the reserve funds of SIPC are used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $100,000 for cash claims. Additional funds may be available to satisfy the remainder of customer claims after the cost of liquidating the brokerage firm is taken into account.

How account transfers work. In a failed brokerage firm with accurate records, the court-appointed trustee and SIPC may arrange to have some or all customer accounts transferred to another brokerage firm. Customers whose accounts are transferred are notified promptly and then have the option of staying at the new firm or moving to another brokerage of their choosing.

How claims are valued. Typically, when SIPC asks a court to put a troubled brokerage firm in liquidation, the financial worth of a customer’s account is calculated as of the “filing date.” Wherever possible, the actual stocks and other securities owned by a customer are returned to him or her. To accomplish this, SIPC’s reserve funds will be used, if necessary, to purchase replacement securities (such as stocks) in the open market. It is always possible that market changes or fraud at the failed brokerage firm (or elsewhere) will result in the returned securities having lost some – or even all – of their value. In other cases, the securities may have increased in value.

How Long Will It Take to Get Your Investments Back?

The SIPC goes on to say, “Most customers can expect to receive their property in one to three months. When the records of the brokerage firm are accurate, deliveries of some securities and cash to customers may begin shortly after the trustee receives the completed claim forms from customers, or even earlier if the trustee can transfer customer accounts to another broker-dealer. Delays of several months usually arise when the failed brokerage firm’s records are not accurate. It also is not uncommon for delays to take place when the troubled brokerage firm or its principals were involved in fraud.”

One of the greatest economists in history once remarked, “Markets can remain irrational longer than you can remain solvent.” Take the recent case of the most royal of blue chips, General Electric and Berkshire Hathaway. Within the past year, GE has fallen from roughly $40 per share to as low as $5.87 per share and the dividends slashed from $1.24 per share to $0.40 per share. Even if you had waited until the stock fell the first 50% to $20 per share, and borrowed against your stocks, you would have long been hit by a margin call requiring you to come up with more money to avoid your broker liquidating your position. Berkshire Hathaway, likewise, has seen its Class A shares fall from $150,000 to roughly $72,000 and it Class B shares falling from $5,000 to $2,150 per share.
In both cases, you are dealing with a company that would appear to have a better than average probability of trading at substantially higher prices five years from now. Yet, if you had borrowed money, you would have been forced to sell out long before the stocks began to rise. To add insult to injury, not only would have been correct, you would have suffered the pain of losing large amounts of money because your timing was not perfect.
For more information on the subject, read Margin 101 – The Dangers of Speculating with Borrowed Money.

2. Don’t Invest Funds You Need for the Next 5 Years

As Warren Buffett pointed out in his most recent shareholder letter, the market was up 75% of the time during the past century. Trying to figure out the specific years those gains would happen is a fool’s game. If you want to buy a house, prepare for retirement, send yourself or your children to school, or expect to have large medical bills over the next five years, stocks are not an appropriate place for you to invest your money. In the long-run, they have proven to be the surest path to wealth for those who are disciplined and rational. In the short-run, they can experience nauseating volatility, fluctuating like a roller coaster.

3. Once You Have Developed a Plan, Don’t Check Stocks Daily

Have you put together a plan that works? Do you dollar cost average, reinvest your dividends, max out your 401(k), and contribute to a Traditional IRA or Roth IRA? Are your investments low cost and diversified like an index fund? If that’s the case, you simply need to follow the same instructions that appear on most shampoo bottles: Wash. Rinse. Repeat.
Over several decades, a program such as this has proven to be hugely successful, resulting in millions of dollars in wealth for those who follow it. If you have the patience, will power, and discipline to engage in such an investing plan, why make yourself sick by looking at stock prices daily? Just as a sale at the grocery store allows you to buy everything from cereal and milk cheaper, a drop in stock prices allows you to get more equity (ownership) in companies. When things recover, that means you have a right to even more earnings and dividends.

4. Don’t Rely on One Salary or Source of Income

A big danger to your investments is the risk that you will find yourself unable to pay your day-to-day bills and forced to sell assets to fund your living expenses. The most sensible way to avoid this is to follow the Berkshire Hathaway Model, which calls for multiple sources of income that are non-correlated. In other words, your income isn’t diversified if both you and your spouse work at the same factory or in the same industry. If you are a realtor and own rental properties, you are less diversified in your income sources than a dentist who owns rental properties.

5. Don’t Cut Your Health Insurance
Nothing ticks me off more than to read about a family earning $30,000 to $40,000 a year cutting off their health insurance because it isn’t affordable yet if you go into their homes, many of these people still have cable television or cigarettes or iPods. What happens if you or your children get seriously injured or sick? Health insurance is the last – read it again – the absolute last area you should cut because of the serious bankruptcy risk that can occur in the event of a disease. Even a policy with a high deductible is better than no coverage at all.