Hoarding cash not best option for thriving firms

Motley Fool

Q: Are companies with lots of cash and no debt the best ones to invest in? — G.D., online

A: Lots of cash does allow a company to take advantage of opportunities that arise, but too much cash can be unproductive and, arguably, even wasteful.

Many successful companies will often keep small cash balances. They spend their cash for purposes such as paying dividends, expanding their businesses and acquiring other companies. If they suddenly need cash, they draw on their lines of credit.

Meanwhile, a manageable amount of debt isn't necessarily bad. Indeed, if a company borrowed at a low rate and made great use of that money, it's an effective strategy.

Fool's School: Down markets

The stock market has been rather turbulent lately, making some investors nervous. No one can know for sure exactly what the stock market will do, especially in the short term. This is true, though: There will be occasional crashes and bear markets — and many of us should actually be hoping for them.

Why? Well, if you plan to be regularly investing money into the stock market over the next decade(s), a stagnant or sinking market is a good thing — for now. As superinvestor Warren Buffett has explained:

"If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. ... Only those who will be sellers of (stocks) in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

It's always best to buy into healthy and growing companies when their stocks are trading at fair or depressed prices — and bargains abound in bear markets. Why hope to buy shares of a company you admire at $30 and then $40 after it rises, when you'd do better buying at $30 and $20? If you plan to buy coffee for the next 25 years, 10 years of falling coffee prices would be welcome, right? (Unless you run a coffee plantation, of course.)

One effective way to build your wealth is to invest money regularly, over many years. Many patient investors have amassed great fortunes over the long run, while those trying to get rich quick in stocks are just gambling and often don't do well.

The media usually treats big or sustained drops in the stock market as only bad and as a good reason to panic. The only ones who should panic, though, are those who need to sell their holdings soon -- and they shouldn't even be invested in stocks. It's best to invest in stocks only with money you can leave in the market for five, or even 10, years.

Name that company

I trace my roots to 1985, when my founder began building his business via a wire- and plastic-products company. You might not know my name, but you've probably heard of some companies I've gobbled up, such as J. Walter Thompson, Ogilvy & Mather, Hill & Knowlton, Burson-Marsteller and Young & Rubicam. (There are hundreds of others under my roof.) Today, based in London, I'm the world leader in advertising and communications services, with a market value recently near $20 billion and with some 3,000 offices in 112 countries. I bill more than $70 billion annually. Who am I?

Last week's trivia answer

I trace my roots to 1901, when a 21-year-old drew an engine meant to fit on a bicycle. Two years later, he and a friend produced it. By 1912, I was exporting to Japan and had more than 200 U.S. dealers. I sold leather jackets beginning in 1947, and today call Milwaukee home. Who am I? (Answer: Harley-Davidson)