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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Pink Minion who wrote (4425)	1/14/1998 11:20:00 AM
From: Ian@SI	Respond to of 10921

Beavis, Re:Very wise statement that is very hard to figure out for some reason - me included. Consider the following: No Margin: You start with $100 cash. You buy 10 shares of GMBL at 10$ each. Stock goes up $5. You now have a paper net worth of $150. ROI = 50% Stock goes down $5, net worth is $50. ROI=-50%; Now same starting point but use full margin(50% for example) You buy 20 shares of GMBL at $10 each. Margin loan = $100; Stock goes up by $5. You now have a paper net worth of $300. ROI=100%. ... and all is well. However is stock goes down by $5, your paper net worth is $0; your margin loan is $100, and you get a margin call. You get to sell your shares at $5 and have nothing. This is what I meant when I said the leverage works in both directions - up and down. One should be aware of the risks before placing the bet; and have specific action plans for each possible price move; especially on the down side. I look at excessive margin loans as a means of turning a reasonably safe investment in equities to something about as risky as short term options. JMHO, Ian.