Compaq Message Board - Msg: 3314267

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Technology Stocks : Compaq

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To: Stonehenge who wrote (15879)	2/1/1998 12:08:00 PM
From: Loki	Read Replies (1) of 97611

Buying stock on margin in this environment... Buying on margin usually carries an annual interest expense between 7.5% - 9.0%, depending on your portfollio size and broker. (My guess is 8.5%-8.75% for you) A (secure) fed/state tax-free bond can yield the equivalent of 8%-9% pre-tax. (Very conservative opposite view point for comparison) This means stocks on margin should return above 16.5% annually. Considering the points below this sounds like a very aggressive investment strategy. - Historically P/E multiples have run ahead of earnings We might see a market correction or sideways movement while earnings catch up. - Analysts do not predict the type of increase in stocks that a margin strategy dictates - Asia will have continued affects on earnings later in 1998 - Europe could be affected by Asia 4Q and there exists a potential this could negatively influence US companies early 1999. - White House scandals creates insecurity with investors - Iraq? Considering your tolerance to risk is extremely important. Look at your asset allocation? Are you trying to peserve or create wealth? What is your time frame? Personally, I don't sleep well, at present, when I have 100K on margin. Be careful and good-luck. (Just my opinion) Loki

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