Dear AMD Friends and Fellow Travelers,
I was once a heavy hitter for AMD. I followed Jerry Sanders III for the Annual AMD Stockholders Meetings in New York in the spring of 1993 and again in 1994. It was the information obtained during the last meeting that made me turn away from my wicked ways of worshipping AMD and I choose Intel. Yes, I found the true path to financial salvation, but more about that later as I must get on with my class.
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****Class 101 on using margin?.by professor humble carl, an Ex-AMD'er SAVED by INTEL!
Brokerage houses have different requirement pertaining to the amount of portfolio equity required by account holders. The most common requirement is an equity value of no less than 35%, and when a portfolio falls below that value a margin call is triggered. At the limit point of 35% you will have borrowed 65 cents for each 35 cents of equity value that you have.
Equations for figuring out how low the portfolio Long value can go before the 35% point is reached, must first be solved.
Defining a few terms:
L=Long= Value of all marginable stocks in portfolio without regard to how much you owe on them.
E=Equity=Equity needs no explanation. Same meaning as used when taking about equity in a home.
D=Debit=The amount owed the brokerage firm.
Solving for the critical Equity point at which point a margin call is made:
E/L=.35; but L=E+D so we have E/(E+D)=.35; E=.35E+.35D; .65E=.35D; E= (.35/.65)D
Halejulia! The critical Equity point, below which margin calls occur is E=.53846D for the 35% margin call point. Many brokers will allow an investor to borrow on margin an amount (Debit) equal to the equity value (Equity) of the portfolio. (As a matter of fact, my main broker allowed me to borrow 60% against my 40% equity, and that got me in big trouble in the fall of 1997). So be careful if you play this dangerous game with a stock like AMD!
If stock values begin to fall at such a time when an investor is on max margin (50/50), how much of drop will the portfolio value have to drop, in order to trigger the 35% margin call point?
Let's assume that we have an actual account. Equity=100k and Debit=100k. This would allow a person to own 200k dollars worth of stock.
For the 35% margin call point E=.53846*100k=53,846. New L= 53846+100000=153846 v/s original Long=200,000. So you see that a mere 23% drop in the value of the portfolio stocks, is sufficient for the account to reach the critical 35% margin call point.
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Facts about the Humble One:
He was saved by the Church of Intel on May 4, 1994 when attending the INTEL CORPORATION Annual Meeting of Stockholders at the Convention Center in Albuquerque, New Mexico. During the 5 years that have passed since this miracle, he has truly be a faithful and humble servant in Intel's quest to bring others, especially AMD'er into the fold of the righteous.
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On behalf of the Church of Intel, we wish all our AMD friends a prosperous 2000! Study the 101 lesson above, as it may save you a bundle if AMD should return to the lowly levels of bygone years.
Why fight the trend?
tscn.com
Why do you enjoy your dangerous unprofitable sinful ways, when the Church of Intel will give you shelter? All repentant sinners please come forward!
piously humble carl
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