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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Boa Babe who wrote (14403)1/7/2000 10:33:00 AM
From: Uncle Frank  Read Replies (4) of 54805
 
>> Why no margin "anytime", Frank? Is that because you don't feel comfortable with it, or because you have some knowledge that hasn't yet hit my brain?

I expected to get called on that sweeping generalization, Kay. Obviously there are times when the use of margin is justified, just as there are valid medical uses for cocaine. The "type of margin" I was referring to was the use of borrowed money to increase investing leverage. There are folks that regularly venture into high margin to increase their positions when they are convinced they are about to experience a period of growth. In these cases the use of margin is simply a timing play (which we know is a flawed approach based on tekboy's experiment <g>) and approximates a "double or nothing" bet. If their stock or option pick continues to decline, the user faces a margin call that will force them to cover by selling their investments at the worst possible time, unless they opt to mortgage their house as one wag suggested.

In an extreme case earlier this year, I watched a friend reduce a 7 digit portfolio to a few thousand dollars in one week. It was like viewing a train wreck up close and personal - nothing I'd care to see again.

I advise my friends to never use margin in the same sense I'd tell them to never to use cocaine.

uf
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