Instead of LEAPS:
How about if you'd put that 40K into AMAT at 23, borrowed 20K on margin, and sold at 103. You end up with 269K, minus interest costs. That's a 670% return. If you buy anywhere near the bottom, and only have 1/3 of your portfolio on margin, the chances of a margin call are very small. The advantage of this method is that if you guess wrong about where the top is, you haven't lost anything in the long run. You just wait, buy more on the dips, and the stock will eventually rebound. With LEAPS, "eventually" may be too late, and you've lost your entire initial investment. Your strategy only works if there is no prolonged downturn. We are long overdue for a recession, and although I don't see it on the horizon soon, I have to keep it in mind. When it happens, you and I will both be surprised.
The main problem here is that noone was clever enough to buy at 23 and sell at 103. And if they did, it was luck, and will not be consistently repeated. With your method, you have to do three things correctly: buy low, sell high, and do it in a specific time frame. With my method, you only have to do one thing correctly: buy low. Oh, one other thing we have to do: pick the right stock! |
