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Non-Tech : Cendant Corporation (NYSE:CD) -- Ignore unavailable to you. Want to Upgrade?

To: rustico who wrote (462)	5/4/1998 10:06:00 PM
From: VALUESPEC	Read Replies (1) \| Respond to of 3627

Ralph, I can understand why you are confused. If my initial investment on Jan1 was $ 100 and I doubled it before even buying CD, I would then have $ 200. If I used the initial $ 100 and invested it in CD @ $ 20 and it went up to $ 25.50, I would have been up 28% on my CD shares, assuming I didn't use margin. However, if I said, "hey, I think the chance of me losing money is small with CD @ $ 19.00, and, hey, I'm already up 100% this year so I'll take a big position", then I could have borrowed $ 100 for every $ 100 I had. In other words, I would invest $ 200 in CD, instead of just $ 100 (the other $ 100 of my actual $ 200 equity, would be invested in other stocks, and also fully margined, as it turned out). This is getting confusing. The bottom line is that instead of only buying $ 100 in CD, I could have $ 200 in CD if I borrowed the other $100 using margin. This means that my earlier 28% gain would turn into about 56% (2 x 28%). Why? Because my equity in CD was still only $ 100, but I made twice the money as it rose ! This, of course, is a doubled-edged sword; I would have been losing money twice as fast as it fell. I would have sold if it went down in an unexpected way (below $ 17?), assuming it gave me the time to. I hope this helps. VALUESPEC