Re Margin Usage
Hi Jim, Dr Tree, et al,
Each to their own strategy. If staying out on margin and using profits to buy more when opportunity arises doesn't suit you --- don't do that. <G>
Firstly and primarily I'm pretty confident about the cycle generally continuing up. I won't go much into my reasons for this since everyone here basically knows them.
---Could we have pullbacks along the way?
Yes, of course. But I don't think we will have plunges ala '98. I've been riding out these dips for months now that Slider says must have wiped out anyone on margin. Others have stayed on margin too, with similar outcomes--- I'm still solvent, and nicely ahead of where I'd have been if I'd tried to go to cash and then buy back in repeatedly.
--- And without as many profitable (and taxable) sales realized as I would have had if I'd been quicker to sell. ---I know Texans don't have state income tax, but even so, most of us here must be in fairly high federal income tax brackets. If one thinks KEG, eg, will do well over the next year or more, how much of a correction must you expect to make it smart to sell + buy back later when your profits will be taxed at ~40+% ??? And since those taxes will be payed next spring, that's money gone for sure in April2001 (or sooner) that could still be in KEG through the cycle growing in your account. And then your KEG profits would be taxed at 20% waaaay down the road, after ALL that money worked for you all through the cycle. (Not to mention the effect on your other tax deductions of having your AGI climb in this blizzard of short-term profits.)
Now, it would be quite reasonable to respond to me thus:
--- "That was fine for the early stages of the rebound, but after that you would be better off to stop buying and just let your positions ride. You'd be less vulnerable to pull-backs and still have nice big positions in your favs for the long-term."
---True! True! But This IS the beginning of the recovery. Imho. I've sold early cycle stocks and bought the late bloomers. Look at 5 or 10 year charts for GLBL, KEG, VRC. Tell me after consideration that they are peaking. HA! Doubles or triples yet, each one.
---And my E+Ps, with the NG fundamental situation over the coming years and oil demand also growing???
Sell now???
Not me!! Those boogers have great potential, and the charts show I'm not alone in thinking so.
---Also,---A small point---as I mentioned a while back, I have a pile of realized profits for Yr2000 (from selling ESV, HAL etc) which I will owe taxes on. Margin borrowing is deductible against those profits, reducing the actual cost of borrowing a great deal.
--- Is it possible that an unexpected major correction would nail my hide to the barn door? -- Yes! That could happen. There's no sure things. But now and then in life there comes an opportunity that seems to have a really good risk/reward ratio, and I think one of those opportunities is Here + Now. I'm inclined to believe the stocks I've chosen will prosper greatly over the next year or more, and I'm playing that belief the way that seems best to me, which means at this point heavily margined.
Everyone has there own situation. I'm young and single and I make a lot of money. If my brokerage accounts are wiped out completely I can shrug and start again. No big deal.
---But if I were depending on my investments here to support my retirement, or if I had kids to support, or had debts of honor to finance, I might not as readily pursue a high(er) risk strategy as I am doing.
---So to that extent I agree with Slider that high margin use is not appropriate for many investors. The trouble with his statements irt margin use are that they are so Extremely Unrealistic. Any one who bothers to check his facts and math can see that he is overstating his case. He repeatedly gives hypothetical examples of people buying into peaks at impossible margin percentages and holding the OSX as their portfolio. I've offered perfectly straightforward statements about my own experience with margin use, as have others, but he insists that we must be liars. That we could not possibly have done anything other than own a straight OSX port, and buy at more than allowed margin percentages, and at peaks, and therefore we've all been wiped out.
---Sorry, Slider, but I'm doing swell.
I think your quick-trading strategy is fine. It doesn't suit me, but I can see that it's a viable strategy.
---But the way you distort the facts about others' margin use is truely ridiculous.
As I said previously, my strategy suits me, but I don't recommend it to anyone else. To show I'm a good sport I'll promise to post the facts if I'm wiped out so Slider can gloat. But don't hold your breath-- I think I'm going to continue to do Real Well.
We'll see how things go.
regards, and good luck to all,
whatever your strategy!
diana |
