Margin - I'd like to throw in my 2 cents worth on this subject. This isn't really for the regulars, because I know a lot of you are old timers and know about risk and cash management. However, I suspect there are a lot of lurkers and novices out there who read the opinions here and take them to heart. I know I was one in 1997, when I was giddily enjoying one of my best investment years ever. We all know what happened after that. The problem was that I stubbornly listened to all the "good guys" who I respected, who were bullish on the industry, and discounted the warnings of the "naysayers" and bad guys, who kept warning about bad things on the horizon.
I actually took some warning in 1997 and reduced my exposure to the OSX, used stop losses and the like as I was supposed to. The problem was that I bought into the recovery theory in early 1998, and bought heavily into the runs going into April. This time I didn't use as many stop losses, and stubbornly waited for the bounce back I knew was going to come. I didn't even use margin back then (phew).
Anybody who wants to know sheer terror, look at the daily OSX chart from May 1998 on till about September. How would you like to be heavily invested in the OSX on margin? I rest my case <g>.
Last year I approached the drillers stocks and my investing with a "ten foot tall and bulletproof" attitude, borrowed from BD. It allowed me to make a hell of a nice income, but I also took inordinate risks with margin and lots of open positions held through the down cycles. Had I been forced to sell through any of these cycles, or had the OSX not rebounded to new highs, my capital would have disappeared in a poof of smoke, and a most painful and dreary 1998 would have been repeated once again.
I was painfully reminded of these dangers in November, when PKD was yanked from my margin account, and I was forced to sell. I wisely opted to dump PKD and took a 9K hit on DO, re-establishing a cushion without having to slowly bleed to death.
2001, while it may yet turn out to be Boom 2001, is no longer for ten foot tall and bulletproof investing. Too many outside economic factors can go wrong and wipe out your capital. I still plan to buy heavily when I see uptrends, and short on downtrends, using margin, but I'm going to be damned careful about it.
If this saves one of you the pain and frustration that I experienced in '98, then it was worth the time to write.
Good luck to all.
Alex |
