That's why using too much margin at any time is a very risky proposition.
absolutely. in fact, there's a nice comment to that effect by some wise man in the thread FAQ, I believe. But everyone will have his/her own tolerance for risks, as well as a good knowledge of his/her situation, needs, reserves, investing time-frame, and so forth. So just how much is "too much" will vary from person to person.
The chief reason I selected excessive margin use during a bull phase as my biggest mistake was not only because it was risky, and not only because it cost me some money. It's primarily because it has forced me to zig when I want to zag, kept me from snapping up bargains the likes of which I never thought I'd see, and that's driving me absolutely bonkers.
Let me explain. Ever since I started investing I've heard wise old turtle after wise old turtle natter on how they bought on the Oct 98 dip or one of its predecessors, and I've turned green with envy. If only I'd have been there, I'd say to myself, I'd have recognized what was going on, I'd have known that the world wasn't coming to an end, and I'd have been able to match my newfound knowledge of great companies with an appropriately great entry point.
But those days were past, I told myself, the world had seen the future, or at least enough of it to know that 3G wireless, and networking, and fiber, and storage, and CRM, and SCM, and (insert your favorite bleeding-edge tech sector here) were going to be hot hot hot. So there was no choice but to hop on the escalator as it was going up, and get at least the last few yards of the ride. I was young, I was a newbie, I was a permabull, I was marking relative valuations off a world-historical bubble top, and never in my wildest dreams did I think I'd see our companies where many of them are right now.
When things dropped, I bought the dips. When they dropped more, I bought more, using margin to buy options. My fingers got burned a bit, but then things rebounded again, so next mini-cycle I would become more conservative--I'd buy LEAPS rather than regular calls, and maybe ATM rather than OTM to boot.
Well, we all know what's happened over the last few months, so I don't have to explain why my portfolio is now roughly 75% off its highs. But I hadn't been too crazy with margin, so I didn't start getting the dreaded maintenance calls (as Schwab euphemistically calls them) until the last couple of weeks, when everything but Qualcomm went into the toilet. (Suddenly Irwin seems like a beautiful name; maybe the next kid...) I've had to liquidate some odds and ends and trim some holdings, but nothing super drastic. And I'm pretty confident that within several months, if not sooner, most of our puppies will be substantially higher, so my common and my LEAPS (mostly '03) should do nicely in 2001. I'll live, and perhaps even quite well.
But I doubt I'll get many more chances to pick up QCOM, JDSU, and NTAP in the 60s, or SEBL and CREE in the 70s, or GMST in the 30s. (Well, maybe that POS GMST, but that's another story.) And thus when for years to come the wise old turtles talk about how they scooped up bargains during the Great Election Debacle, when Katherine Harris had her 15 minutes of fame and capex ended forever, I'll have to sit there and bite my tongue and suck up the bitter green bile, knowing I could be saying it too if I hadn't been such a god#*^%$@ irresponsible schmuck.
tekboy/Ares@stillyoung,stillprettybullish,somewhatlessofanewbie.com |
