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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: chaz who wrote (23059)	4/19/2000 9:08:00 AM
From: Bruce Brown	Read Replies (1) \| Respond to of 54805

RE: Chaz on margin... You're right, Chaz. Margin can indeed be used as a 'tool' at the right time once the instructions have been well read, understood, adhered to and not abused. However, it is not a tool for every investor. I've used it only once - and it was judiciously (only borrowed 10 - 20% of my portfolio's value) - between the fall of 1998 because of the opportunity at that time and held that margin until the end of December 1999 and early January of 2000. I guess that qualifies me as even having been a 'long term margin user'. If an event that was framed with what appeared to be equal opportunity happened again, I would consider a similar move if I felt it was warranted and was fully invested at the time. I don't think that event presented itself in the form of this recent correction like it did in 1998, although I did move a little cash into a few more shares of some favorites. Likewise, credit can be used as an effective tool for leverage - be it a short term, intermediate term or long term loan. We can buy a house and we have no guarantee that over the life of the loan that the value of the house will meet, beat or lose value with inflation. However, the qualifications have to be met for each borrower and there is a strict limit set as to how much one can borrow based on income, assets, credit history and property value. All we have to do is make the payments. Yet, if the property of the house falls in value beyond a certain level - nobody is going to knock on our door and take our home away. We can borrow up to a limit on margin for equity/bond/cash use as well - as long as we make the interest payments. Yet, in my opinion, there should be more stringent rules as to what that limit is to keep some of the 'tragic stories' - be they fake or false - from happening. Like UF said, I don't think they are all made up stories as I've read a lot of posts from individual investors who may have had less than $10 - 40K in their portfolios and now they are back to nearly square one or in the hole. Ouch! That has got to hurt for investors just starting out and had visions of seeing that $10 - $40K 'dream' its way up over the $100K or higher point by taking on the risk to boost the returns quicker. If the posts I have been reading are sincere, it appears that far too many don't seem to be able to control the 'greed' and 'get rich quick' way of thinking and fail to plan for 50 - 70% slides in equity prices when figuring how much to borrow on margin in the first place. They took on too much risk at exactly the 'wrong time' to be taking on that level of risk. Of course, I consider taking 12 - 15 years to "get rich" as being a pretty quick time frame. Fast, in fact. It's taken that long for me to train my wife and for her to train me. It took me at least that long to learn how to train my voice and be able to sing at the professional level I wanted. Most careers, no matter what field, take years to develop until they finally launch into those peak earning years due to experience, talent and skill. In the scheme of things - a decade or two is not that long of a time frame to build one's wealth. I know you have mentioned more than once your 5 or 6 month period of gains and I always have to step in to the discussion to offer the long term tortoise's opinion. We all had a period between the fall of 1998 and the end of March, 2000 where doubles, triples, quadruples, quintuples and more (I can't spell any more than that) seemed like a 'piece of cake'. I think it is much more realistic to view the time it takes to build wealth as being a longer term, controlled event rather than short term overly aggressive moves with a high degree of risk that could lead one to set unrealistic expectations and fail because of it. Time is the most important part of the equation if we just allow it to happen. The Gorilla Game talks addresses this and certainly the types of returns that gorillas have provided over a decade or more would qualify as making investors who bought and held them arrive to quite an excellent financial position. Plenty of other stocks that are not in high technology have provided wealth over the long term as well. So I am in agreement with you that the 'tool' of margin when applied properly could benefit some investors and as you explained, you seem to be using it judiciously. I caution that for those that lurk and read this board - there is plenty of time to build wealth over the years without having to use margin. Some future day, if one is in position to take advantage of an opportunity like the autumn of 1998 and buy more of their favorites using a conservative 10 - 20% of their portfolio value, it might give that rare 'boost' that seems to come along once or maybe twice every decade. This is where a conservative use of margin might be appropriate for some, but not all. BB BB

To: chaz who wrote (23059)	4/19/2000 9:48:00 AM
From: Mike Buckley	Respond to of 54805

Chaz, Perhaps I'm the exception margin user. Not just the exceptional user of margin, also the exceptional investor. Your portfolio returns in the last couple of years bear that out. --Mike Buckley

To: chaz who wrote (23059)	4/19/2000 4:03:00 PM
From: tekboy	Respond to of 54805

<<Tekboy, I take some exception to your FAQ suggestion about margins, because for me, it really doesn't apply.>> Chaz, three points: First, I tried to be very careful in my wording of the margin point, and always qualified the warning by using words like "risk" rather than "certainty" and "significant amounts" rather than just "any margin." Even you would agree, from recent experience if no other, that the more margin you carry, and the longer you carry it, the more you risk getting caught on the sharp end of the stick during a downdraft--which can come suddenly and severely at a moment's notice. That means you have to pay careful attention to short-term market movements if you have it, which is inconsistent with the GG's injunction to "ignore all non-game related news." Second, I think your description of margin as being a tool like a table saw is accurate--but it's probably more like one of those buzz-saws you carry around in your hand, which are even riskier. The Gorilla Game approach is a conservative one, however, and is meant to allow ordinary, even inexperienced investors the chance at a high return with comparably high safety. Just because a good fix-it type can safely manage a buzz-saw doesn't mean that it's a tool you want to leave lying around the house where anybody (including klutzes like me) can casually pick it up and hurt themselves grievously. Third, we have agreed that for general discussion on this thread, if only to keep it safe for the newbies, we should stick to discussions of the gorilla game proper. Godzillas and options have their own threads, as do curmudgeons; perhaps you want to start a margin thread? :0) respectfully, tekboy/Ares@gottarun.com