And in general, the investors here at SI are more knowledgeable, more thoughtful and much more professional than "whole hog margin" day-traders on some of the other boards.
My rules for investing (and I make mistakes too)
1- No penny stocks, unless you can lose the whole amount, easily
2- Margin if used, at 20% or less of you total portfolio. More like a home equity loan, if you cannot get one (long story)
I had margin at 35% when I started, brought it down to 30%, then 25% and is now sitting at 18%, even after I bought 100 shares of PMCS last week for 23K $, and 1 Broadcom LEAP 2002 for 10.4K $...
If you have to use margin, invest in blue chips like SUN, Intel, MSFT, JDSU (sorta), CSCO, EMC , NT and others.
If you have margin on speculative stocks, you are just one "earnings warning" away from disaster.
I survived the 1997 asian, and 1998 russian meltdown at 35% + margin with the stocks I had (csco, emc , sunw , intel, msft etc)...
If you really want to goose your returns, stay at 25% or less margin, and buy LEAPS as far as you can... Options only on "expensive " stocks you cannot buy (like JDSU) which you KNOW you will (hopefully) exercise.
A couple of examples, and I know people here are much better at this than I am, but here goes..
I bought 1 2001 SUN LEAP in 1999, for $ 3000 or so. That LEAP has turned into 4x 2001 LEAPS Price : $ 25 !!!!! exercise, and I have 9 months to go ....
I bought 2x JDSU Calls June 120 in December 1999 for 10,500 or so, since I could not buy the stock (no real money left), and was afraid of incresing my margin %....
Those options are now 8x JDSU Calls June 60's, whihc I will exercise if they are still in the money by June...
I will need $ 48,000 to get those 800 SHARES of JDSU , worth by now, $ 104,000 ( I think)...
I guess, this long rambling message is that for options, I use them as stock replacement, and use maybe 20% or less margin on blue chip stocks.
I cannot take any more risks, that I am comfortable in taking any more.
Once I reach my objective I have set for myself, I will pay back most of my 18% margin, and let the whole thing ride.
Oh BTW, EVERY LEAP I SOLD at a modest profit (those corrections remember...<g>), I LOST A fortune in future value on, including 2x CSCO LEAPS I bough in..... April 1997 Call Price $ 50 ... Can someone tell me what those are worth today, even if I had to exercise them by expiry ?
Take care everyone
JMVHO
Jean |
