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Technology Stocks : Lucent Technologies (LU)
LU 2.500-0.8%Nov 28 9:30 AM EST
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To: ShamukE who wrote (2011)4/3/1998 12:22:00 PM
From: Sawtooth  Read Replies (1) of 21876
 
ShamukE: Here is how I view margin: It's debt. As with any other debt, you need to consider all of the ramifications. And you have to pay interest. Debt allows you to leverage your equity. With two to one debt:equity you have twice as much leverage (buying power) as you would have using straight equity. It's not much different than a business borrowing money to purchase assets. One big difference is that you are investing the debt in volatile equities vs. relatively stable business assets.

You're right, it can be dangerous. It's dangerous for a business to borrow if there is a concern that the results of operations may not be able to cover the interest costs and debt reduction. You may lose your business. It's dangerous to borrow on margin for stock investments if you are speculating on short term moves and can't afford to eat the loss if you are wrong. You may lose your investment. But margin can also be very useful, if after a careful analysis of all the factors, you make a decision that the risk is, to an extent that is satisfactory to you, less than the expected reward.

Most of the successful investors I know use margin; but they use it very judiciously. Good luck to you! ...Tim
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