# How many people get above average returns over the long term?



## alex123711 (21 March 2019)

Many people argue that you are better off in the long term putting your money into index funds, I think the average is around 7-8% compounded and that most money managers do not beat this, there are some of course that do beat this such as famous value investors; buffet, greenblatt etc. But how many individual investors actually beat this return also?


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## tech/a (21 March 2019)

alex123711 said:


> Many people argue that you are better off in the long term putting your money into index funds, I think the average is around 7-8% compounded and that most money managers do not beat this, there are some of course that do beat this such as famous value investors; buffet, greenblatt etc. But how many individual investors actually beat this return also?




Speaking for myself.
A very high % of traders / Investors fail to the point of losing their initial stake.

On funds I use for Investing (Super) and Trading ( Capitalizing on surplus funds which I can trade over 50 trades a year).
I do better than 8%

If you don't have the ability or the time then an Index Fund maybe an option.


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## Zaxon (21 March 2019)

alex123711 said:


> Many people argue that you are better off in the long term putting your money into index funds. But how many individual investors actually beat this return also?



The All Ordinaries has returned 10.97% over its lifetime (including dividends). That's the "Gold Standard". If you don't have a reasonable expectancy of beating that over the long term, then you're better off using an index fund.

The shorter your holding period, the greater the skill you'll need. The account wipeout percentage of day traders is very high.  So is the reward, if you can master the skill.

Investing needs to account for the personality of the investor too. Some people hate losing, so protecting their capital becomes a higher priority for them, even if it reduces their potential returns.  Some people crave activity, and so would get bored with buy-and-hold.  Others like to set and forget.


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## explod (21 March 2019)

The big ones hit it right in the beginning and are then able to have scouts on the ground, auditors etc.  Of course as holdings grow they can have a say and are also in touch.

If one could really hit a 10 your next move would be to take ownership of tattslotto.

Small local explorer/producers in mining are good as you can visit the areas, talk to workers, attend meetings, profile career credentials of management etc.  My first like that was in 1968 from 10 cents to 90 cents in about four months.  However that is regarded as insider trading as I used to meet those involved at the Pub on Friday nights.


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## willy1111 (21 March 2019)

alex123711 said:


> Many people argue that you are better off in the long term putting your money into index funds, I think the average is around 7-8% compounded and that most money managers do not beat this, there are some of course that do beat this such as famous value investors; buffet, greenblatt etc. But how many individual investors actually beat this return also?




What's important is whether YOU can.

I believe a diy investor has more chance of doing it than an active fund.

Below are some threads which may be worthy of supporting that view

https://www.aussiestockforums.com/threads/smsf-returns.25070/

https://www.aussiestockforums.com/threads/asx-momentum-trade-book-part-2.29971/page-122

https://www.aussiestockforums.com/t...-milestone-feed-my-ego-thought-sharing.30692/

https://www.aussiestockforums.com/t...hanical-system-a-trend-following-diary.30641/

https://www.aussiestockforums.com/t...thly-momentum-portfolio-vs-index.34268/page-5

I think it is mathetical. An index is the average return of a group of stocks. VAS for example is the ASX 300, weed out some of the ordinary shares and one should have a fair chance of outperformance.

Then again maybe it is just luck.

Upto you to decide.


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## Lomu (12 April 2019)

I've been running my SMSF for about 3 and a half years; in that time, I've been running at about 38% per year.

I really don't think I have any more skill than any other investor- perhaps less; but I got lucky with some companies that have really gone well. But at this stage I'm getting itchy fingers and starting to lean into the thoughts of selling, paying the CGT and dropping the profits into an index fund.

But yes; beating the market over the long term seems to be nearly impossible for the average investor. Better to just park your money in VAS or VTS and sit back and let compounding do the work for you.


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## kahuna1 (12 April 2019)

MFG .... or better MFF ... the latter is in the top 10 fund-mangers over 10 years in the world. He founded MFG and ran its portfolio for its first 6 years.

Even  morningstar, who is meant to follow performance cant get their return right on MFF. The other 5 serious people and investment houses who follow returns however can and I think last one was 7% PLUS above the index over 10 years and similar for 5 and 3 year measures.

Its rare, to find a fund manger that adds value, year in, year out. The guy now running MFg is a good fund manager beating the index after costs by a small margin, so he is in the top 10% of fund mangers globally.

Beating it by 5% or more, the latter, MFF ... is, risk adverse, and has rarely taken any steps back at any stage even in the GFC compared to the index. Hard to do, in fact very hard to do.

Putting money onto an index fund, an overseas one based on USA stocks, is, well, given the index and USA stocks are at all time highs, all time highs compared even to the peaks of 1929 and 2000 ... and in fact 120% of those highs trading at 150% of GDP due to the fact no tax is being paid by any of them in the USA and rest of world. Investing into all times highs when looked at this way for the USA index, is asking for below par returns at some stage likely in a serious way.

*So I caution the long term returns on both MFG and MFF* until some sanity returns to the USA and its tax system and healthcare one.

Our index, well ... we are not even to pre GFC levels. Much the same for most other nations as they actually pay for healthcare ... USA has abandoned it ... and run a more balanced society than the USA. USA has decided, or the top 1,000 CEO;s and Billionaires there don't like tax, and here we have a stock market propelled by ... something that has a very finite life.

Our market, the tax burden has actually gone up 1% post 2000 .... USA has CUT the tax it collects, despite record profits and collects 6% less of GDP in tax.

Buying an index fund here, well, will not make you rich. MFF and MFG invest manly overseas for a reason and buying a stock here with a millstone around its neck, ignoring the human cost .... is why the USA is nearly 3 times the low ... of 2009. If we were the same the index would be 9,000 on the ASX 200 not 6,200 ish.


As for domestic decent fund managers ? who invest mainly in Australian shares ? Well ... last time I looked it was hit and miss and NONE .... not a single one got a tick beating the index by any decent margin without... WITHOUT leverage ... ona 1,3,5, and 10 year scale. Sure some pulled the proverbial rabbit out of the hat one year, only to swallow rubbish the next year.

Maybe its changed since I last looked but wrote a paper on it in 2016/17 so its unlikely anything new has occurred. Favorite trick or game woeful very big fund mangers played was when their fund did so badly it performed 2,3,4,5% Under the market and some cases close to 10% over a period, they wound the fund up .... covering their stinky record and opened a new suckers fund.

If one can outperform the market by 5% or even 10% over a long period, and the market itself over time rises 5% ... it doesn't take long to increase your wealth.


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## Zaxon (12 April 2019)

Lomu said:


> I've been running my SMSF for about 3 and a half years; in that time, I've been running at about 38% per year.



Excellent return! I'm sitting on 37.5% return since July 2018.  The year isn't over yet, so it could go either way.  That rough spot in Nov/Dec 2018 was a wild ride.


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## aus_trader (12 April 2019)

Zaxon said:


> Excellent return! I'm sitting on 37.5% return since July 2018.  The year isn't over yet, so it could go either way.  That rough spot in Nov/Dec 2018 was a wild ride.



Do you buy and hold mostly or actively trade?


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## Zaxon (12 April 2019)

aus_trader said:


> Do you buy and hold mostly or actively trade?



I hold stocks typically from a few months to a few years.  That makes me an investor not a trader, but not really a buy-and-holder either.


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## aus_trader (12 April 2019)

Zaxon said:


> I hold stocks typically from a few months to a few years.  That makes me an investor not a trader, but not really a buy-and-holder either.



Done well Zax, so far the strategy looks to be having a very good return over a year.


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## Zaxon (12 April 2019)

aus_trader said:


> Done well Zax, so far the strategy looks to be having a very good return over a year.



Thanks.  It will be interesting to see how the same strategy performs in a down market.  I guess I'll find out soon enough


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## aus_trader (12 April 2019)

Zaxon said:


> Thanks.  It will be interesting to see how the same strategy performs in a down market.  I guess I'll find out soon enough



Yeah, we can't predict when but suddenly the bear can come out of the blue...


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## Value Collector (13 April 2019)

alex123711 said:


> Many people argue that you are better off in the long term putting your money into index funds, I think the average is around 7-8% compounded and that most money managers do not beat this, there are some of course that do beat this such as famous value investors; buffet, greenblatt etc. But how many individual investors actually beat this return also?




I have averaged a return of over 20% pa over the past 19 years.

Some of this is due to the use of leverage.

But yes, on average as group we can't all beat the market, So if you are giving advice to the masses, and you want to inoculate them from the risk of under performance, then it makes sense to suggest that they stick to index investing.

However, if a person is going to spend the time and dedicate themselves to learning, and they have the required emotional stability, then they may do better by avoiding the index.

But like anything there will be winners and losers amongst those that try to out perform, I think 99% of people would be better of just going the index route.


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## Zaxon (13 April 2019)

Value Collector said:


> I have averaged a return of over 20% pa over the past 19 years.
> 
> Some of this is due to the use of leverage.



That's very impressive.  Can you estimate what you return would have been without using leverage?


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## kahuna1 (13 April 2019)

Hi,

an observation and Zaxon question is a good one .... leverage ...  having a portfolio of say 300k but only putting up 50 k and leveraging at 6 times works, then it does not and its all gone.

CFD's whilst I understand popular, during times of crisis, and whilst I never touch them, ever, the prices are not ASX ones but the person with WHOM you have the opposing position with. A BIG BIG issue.

As a person inside markets for 30 plus years, the number of people who MAKE a full time living via trading verses those who try are less than 1% longer term. The market sorts out all things over time.

Lastly, whilst a fan of technical side trading to SOME extent, without knowing what your buying and IF it has any real value, your mission is eventually going to run into things which will and do occur such as a company out of the blue going bust. Loss 100% ... or as we saw with Crown say this week ... your short because technically its looking sick, the next day its up 40% .. then the takeover is gone and its down 20%.

At some stage, stocks which eventually will be worth nothing, look great technically and the way from one side to the other is usually littered with massive GAPS and often one day its $1- and the next ZERO.
Yes diversification helps ... and even the best Fundamental analysis cannot help sometimes when the company lies to you, but it reduces buying things which likely have little potential longer term.

PDN the Uranium stock, went from under 10 cents to $10- back to 15 cents or so. Great ride some of the way UP and DOWN ... but the down is and was hit by gaps and where the price did not emerge for some time. Using CFD's ... they often have the price removed ... or trading 2% below the ASX in these situations. 

Nothings perfect I suppose, just human nature sometimes takes a system and a stock you have made a lot on and are only meant to be holding a 15k position in, and cutting a loss at 1k and your holding a position at 60k and not taking a loss at 5k and eventually taking a bath of 30k loss.

Last observation and its a very key one. The best performing stocks, GOOD ONES ... big ones ... on this site and via brokers ... often you will find LITTLE if any chat, few followers and a stock say that goes up 20 fold or 40 fold such as CSL is rarely mentioned and often is a sell on brokers recommendations despite going up 40 fold. Others say like MFG, a 40 fold gain in 10 years, if not double that with the options and then second options, was not covered or even spoken about by brokers for a very long time. 

Great idea and holding religiously .... CUTTING religiously ... no matter what and RUNNING profits ... religiously is what will make or break the system. 

In a bull market, such as the USA and we have had to a lessor extent post GFC all works one way, in times of say economic turmoil or weak economies, the corrections and gaps are brutal often without exits to stop loss.

Good luck


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## Value Collector (13 April 2019)

Zaxon said:


> That's very impressive.  Can you estimate what you return would have been without using leverage?




Sorry Mate, I don’t have the information I would need to make an accurate estimate on that, it would just be a guess.

I did the calculation last year based on the following.

1, I know exactly how much I had when I left home 19 years ago.

2, I know exactly how much I saved each year from my wage.

3, I knew what my portfolio was worth when I did the calculation.

These from these three figures I can work out my investment gain over that time was about 22% per year.

It would actually be a bit more, because I have been living off my portfolio for a while, and I didn’t factor in the withdrawals I have made, just its present value.

————

How ever, as I said over that time I used leverage eg. Investment property loans, a margin loan and options. 

But yeah, 22% was across the entire investment portfolio which includes some residential property, so the shares side of things must have been well over 22%.


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## rnr (13 April 2019)

Hi kahuna1,

"CFD's whilst I understand popular, during times of crisis, and whilst I never touch them, ever, the prices are not ASX ones but the person with WHOM you have the opposing position with. A BIG BIG issue."

Not all CFD providers in Australia offering ASX CFDs operate their business in the same way. For example FP Markets is a DMA (Direct Market Access) provider for ASX securities and when you place a BUY or SELL order with them, your order is visible in the market until filled. You can look back through the ASX history for that day and track the transaction. Leverage is certainly involved and you need to factor that into your position size calculation.

Cheers,
Rob


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## kahuna1 (13 April 2019)

500:1 Leverage

FP brokers with how much capital behind them ?
https://www.fpmarkets.com/

Nothing like giving hand grenades to children to play with. 500:1 Leverage ,,, gee a 0.2% move and your GONE !!

this address rings a bell ... isn't it Tri-continentals old location ?

First Prudential Markets Pty Ltd. ... First Prudential Markets Ltd is licensed and regulated by CySEC (Cyprus Securities and Exchange Commission) with licence number 371/18.

Hilarious.

Good luck.


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## Value Collector (13 April 2019)

kahuna1 said:


> .... leverage ...  having a portfolio of say 300k but only putting up 50 k and leveraging at 6 times works, then it does not and its all gone.




Yep, like fire it’s capable of cooking your lunch or burning your house down.

You have to know what you are doing.

Leverage applied in sensible ways and sensible amounts to a sound investment operation can improve returns.

However leverage applied in silly ways, in silly amounts to a speculative portfolio will eventually blow up in your face, even if it works well for a while.

I wouldn’t suggest a beginner use leverage.


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## StockyGuy (13 April 2019)

Value Collector said:


> I wouldn’t suggest a beginner use leverage.




Indeed, to be droll, it's one of those ironies...by the time you are ready to use leverage you presumably have had so much success that your trading capital is such you no longer need leverage.

But, to be more serious, if I have method with expectation of say 10% a year and margin loan at 5% per annum, why not use it to double or triple my portfolio size, to grow my profits faster?  That's not same as 500:1 CFDs or Forex leverage...


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## Zaxon (13 April 2019)

StockyGuy said:


> But, to be more serious, if I have method with expectation of say 10% a year and margin loan at 5% per annum, why not use it to double or triple my portfolio size, to grow my profits faster?  That's not same as 500:1 CFDs or Forex leverage...



There's no reason that you couldn't. But you'd need a way of servicing the loan.  The stock market can go through lengthy periods of down or sideways growth, year after year.  In which case, you're restricted to high dividend stocks, which is only a small subsection of the market, or you're prepared to sell down stocks because you have a bill to pay, not because your trading system (etc) says to.


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## rnr (13 April 2019)

kahuna1 said:


> 500:1 Leverage
> 
> FP brokers with how much capital behind them ?
> https://www.fpmarkets.com/
> ...




@kahuna1
This is the statement you made!

"CFD's whilst I understand popular, during times of crisis, and whilst I never touch them, ever, the prices are not ASX ones but the person with WHOM you have the opposing position with. A BIG BIG issue." 

Interesting response....just a shame it has no relevance in the support your claim.

I don't believe that I am being unreasonable with my response, if you are willing to address the issue you've raised, I am more than happy to listen.

Cheers, 
Rob


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## leyy (13 April 2019)

I have been reasonably successful as a medium to long term investor.

This is a summary of my stats for all trades in all portfolio's (personal + SMSF) between 2012-2019.

Win%: 53%
Win/Loss Ratio: 2.24
Profit Factor: 2.50
Average Days Held: 315 days
Gross Trading P&L: 17.1%
Net Trading P&L: 18.8% (including dividends, franking credits and minus brokerage).

No leverage used, mainly invest in small/medium cap equities.


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## aus_trader (16 April 2019)

Zaxon said:


> There's no reason that you couldn't. But you'd need a way of servicing the loan.  The stock market can go through lengthy periods of down or sideways growth, year after year.  In which case, you're restricted to high dividend stocks, which is only a small subsection of the market, or you're prepared to sell down stocks because you have a bill to pay, not because your trading system (etc) says to.



Spot on Zax, I think leverage used for buying a house is OK where the bank usually funds 90 to 95% of the purchase. Unless of course someone has full amount up front, probably not the case for many of us.

The problem with a margin loan for stocks is the dreaded "Margin Call". If your portfolio goes through a downturn (drawdown), then you'll be forced to sell near the bottom not because you want to but your margin loan provider forces you to !

It's a weapon of wealth destruction, so use with extreme caution.


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## tech/a (16 April 2019)

aus_trader said:


> Spot on Zax, I think leverage used for buying a house is OK where the bank usually funds 90 to 95% of the purchase. Unless of course someone has full amount up front, probably not the case for many of us.
> 
> The problem with a margin loan for stocks is the dreaded "Margin Call". If your portfolio goes through a downturn (drawdown), then you'll be forced to sell near the bottom not because you want to but your margin loan provider forces you to !
> 
> It's a weapon of wealth destruction, so use with extreme caution.




Sorry don’t agree.

Using other people’s money for a fee (interest) is THE way to increased wealth.
THE WAY to poverty is not understanding and implementing risk control.

Margin calls are alarm bells not something that you HAVE to tolerate.
If you run a business a loss is an alarm bell.
Negatively geared property without being used as a hedge or increase in capital value is also an alarm bell.

Only a small minority master RISK
Probably the most important skill you CAN master.


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## Knobby22 (16 April 2019)

My gearing is near 100% so I cannot afford too many mistakes.
I don't keep track of my profits (except for tax purposes).
The dividends go to an offset account on my home loan and my share loan repayments come out of that.
As this does not cover the total loan cost I end up putting in about the same amount as the dividends.

When I make $4,000 over the initial loan amount I spend it, sometimes half / half paying of my house and share loan or sometimes doing things like pay for my wife's 50th (last year), sometimes towards a new car etc. It is a useful, if intermittent, income stream.

If you are learning though it is better to not borrow.


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## tech/a (16 April 2019)

Knobby who are you with?


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## Knobby22 (16 April 2019)

tech/a said:


> Knobby who are you with?



The loans? CUA Credit Union Australia.

Just like a bank only honest.
https://www.cua.com.au/


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## aus_trader (16 April 2019)

tech/a said:


> Sorry don’t agree.
> 
> Using other people’s money for a fee (interest) is THE way to increased wealth.
> THE WAY to poverty is not understanding and implementing risk control.
> ...



You may be right tech/a. But I don't personally use any form of leverage for my stock trading/investing purposes. I did try a long time ago but I ended up getting stressed out about margin calls and about the portfolio going up and down like a yo-yo.

Borrowing for real-estate is something that I have done with loans. Firstly I don't have that kind of money up front and secondly I am much more calm about it as my house value doesn't go up and down like the stock market.


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## Smurf1976 (16 April 2019)

aus_trader said:


> You may be right tech/a. But I don't personally use any form of leverage for my stock trading/investing purposes. I did try a long time ago but I ended up getting stressed out about margin calls and about the portfolio going up and down like a yo-yo.



If a particular approach keeps the psychological aspects under control then that's an advantage to that approach aside from any other attributes of it.


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## Garpal Gumnut (16 April 2019)

As you guys say, the psychological aspects are moot.

Particularly when you are retired and have no income/super contributions to hide your inadequacies. 

I've become more conservative and slow with age, and am now likely to follow NABHA buy $69 up to $89 sell, rather than the helter skelter of maybe's. 

BHP. RIO CWN LLC been all good to me by buying and selling at critical times. 

Keep it simple baby. 

gg


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## aus_trader (16 April 2019)

Garpal Gumnut said:


> As you guys say, the psychological aspects are moot.
> 
> Particularly when you are retired and have no income/super contributions to hide your inadequacies.
> 
> ...




That's it GG, I also like to keep things simple. So it's one less thing that I need to consider(& worry about) when investing when I don't borrow and only use my savings.


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## Zaxon (17 April 2019)

I can see both sides of borrowing to invest.  Here's a few pros and cons that come to mind.

For Case

Loans are historically very cheap.  Cheap money could be a once in a generation opportunity too good to miss.
If your investing/trading system has a positive expectation, why wouldn't you capitalize on that by feeding it more money?
You can borrow against real estate, which eliminates the risk of margin calls
If you have independent serviceability of the loan payments, that is you have leftover money from your salary that can cover the interest payments, you're not solely dependent on your investments to pay their way.  Hence you can survive an extended down stock market easily.
Gearing could be the difference between retiring modestly, or retiring wealthy.
When you retire, you'll be drawing out 4% (etc) consistently from your investments, both in good and bad markets.  If you keep your loan-to-value ratios low and make sure the repayments don't go over 4% of your total investments, in a sense you're "practising" for retirement, while magnifying your returns.
Against Case

Warren Buffett and Charlie Munger have spoken out strongly against borrowing to invest.  Using words like "crazy" and "risking everything".  Are you wiser than Warren Buffett?
The market will halve by 50% in the future (if history teaches us anything).  If you're leveraged, you still have to pay the loan plus risk a possible margin call.  A market crash could risk you losing everything, if your LVR isn't very conservative.
If you're debt free in a market crash, your net worth drops, sure, but there's no additional risks.  There's no loan to repay. Your costs are zero.  You simply ride out the crash.  You're not going broke. You've got time.
ANZ margin interest rate (as an example) is 7.03%.  You need >7% returns just to break even.
Most listed companies (but not all) have debt of their own. That's why company profit growth typically exceeds GDP growth. So most shares are internally leveraged. Are you really going to leverage an already leveraged product?  Isn't that the definition of super risky?
If you're prepared to increase your risk for potentially higher returns, you can already do that without borrowing.  Have a look at small caps.  The returns of APT, ANO, A2M etc have been huge. No debt required. In fact, margin loans will have a list of approved shares you're restricted to. By using a margin loan, you're limiting yourself to bigger, slower growth companies.
No loans means you can sleep at night. If there's another 9/11 and the market closes for a week, it doesn't matter. If a company you own goes broke, that's sad, but you don't have a loan to pay off on a stock that no longer exists.


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## aus_trader (17 April 2019)

Zaxon said:


> ANZ margin interest rate (as an example) is 7.03%. You need >7% returns just to break even.




There you have it folks. Zaxon has made the argument highly tilted towards the 'Cons' side of the equation. Not to mention there are more dot points on the Cons 

Even if it didn't come from the investing legends like Charlie Munger / Warren Buffet the argument against borrowing to invest in the stock market should be common sense. Just think about it. You need to have a system that produces ridiculous returns per year in order to be ahead, don't forget as a trader/investor you are already stacked up against inflation, possible downturns and trying to get above index returns. It would add additional pressure for your portfolio to perform in order to account for the margin interest rate, so in this case your system has to produce another 7% compared to someone without leverage !


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## tech/a (17 April 2019)

Perhaps this example of how to use Leverage *PROPERLY* will 
get you thinking about how you use it and why there are
very sensible and correct ways to use it *WITHOUT* taking on 
any more risk than using your own cash.

You have a $50,000 account---your money. You risk 2% on a trade
(Or just insert your Percentage). In this case $1000. 
You see a trade in BHP You already have $35,000 invested.
In the example Posted here which I noted and posted as it happened
The stop was $1.40 from the Buy the trade would have cost $28,000 

The only way I could take the trade was on margin. *No more risk*
I would have moved the stop to* ## *have the trade and be sleeping
well at night. All of my other trades are similar with *mitigation of risk
the prime objective. You do not take on more risk


Profit ratio to risk starts at 2% for most of my trading (3-4% rarely)
but OVERALL on accumulated trades through a year averages .07%






*


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## Zaxon (17 April 2019)

aus_trader said:


> Not to mention there are more dot points on the Cons



Against by one point?  lol.  It wasn't planned that way.  I was trying to give a balanced view on both sides.  

But in listing the points, I inadvertently discovered whether I should personally use leverage or not, although that wasn't my plan going into the post.


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## PZ99 (17 April 2019)

Zaxon said:


> Against by one point?  lol.  It wasn't planned that way.  I was trying to give a balanced view on both sides.
> 
> But in listing the points, I inadvertently discovered whether I should personally use leverage or not, although that wasn't my plan going into the post.



One dot I would add is not to rely on dividends as an interest offset because they are not term deposits.

I use leverage all the time for trading bank stocks and it works well. 
7% p/a is 0.13% a week. Banks usually trade over a 1% spread even on a flat day.

Although I won't be doing any more until after the reporting is over in a few weeks


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## aus_trader (17 April 2019)

Zaxon said:


> Against by one point?  lol.  It wasn't planned that way.  I was trying to give a balanced view on both sides.
> 
> But in listing the points, I inadvertently discovered whether I should personally use leverage or not, although that wasn't my plan going into the post.




That's the main thing, that each person discovers their individual style and use tools and advantages that complement it.

I think I have learnt a fair bit too from this discussion. I actually didn't say in the posts to never use leverage even with stocks, just to use them with "extreme caution" and I still hold that view. From the discussions above I can see how tech/a and PZ99 uses them for the shorter term strategies where the interest cost will be very small and if the strategy is a good one then leverage is going to boost returns. But for longer term investors you really have to ask yourself is it worth it to put another 5% to 7% per year burden on your portfolio.


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## Knobby22 (17 April 2019)

aus_trader said:


> That's the main thing, that each person discovers their individual style and use tools and advantages that complement it.
> 
> I think I have learnt a fair bit too from this discussion. I actually didn't say in the posts to never use leverage even with stocks, just to use them with "extreme caution" and I still hold that view. From the discussions above I can see how tech/a and PZ99 uses them for the shorter term strategies where the interest cost will be very small and if the strategy is a good one then leverage is going to boost returns. But for longer term investors you really have to ask yourself is it worth it to put another 5% to 7% per year burden on your portfolio.



My interest rate is 4.49 for the share loan but point is good. The problem is that I built a new house and have to pay that off also at 3.59%.

I am better to concentrate on that while making money through the shares and negative gearing the interest.
Both loans have dropped due to payments and successful share trading so my share gearing has been dropping.  The longer it goes the less risk. 

If I didn't do it this way I wouldn't be able to take decent share positions and make much money.
Trading at $3000 for instance has its  own costs.


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## aus_trader (17 April 2019)

Knobby22 said:


> My interest rate is 4.49 for the share loan but point is good. The problem is that I built a new house and have to pay that off also at 3.59%.
> 
> I am better to concentrate on that while making money through the shares and negative gearing the interest.
> Both loans have dropped due to payments and successful share trading so my share gearing has been dropping.  The longer it goes the less risk.
> ...




Good to hear that you are stying on top of things and making sufficient money to cover all your expenses including interest costs. Actually your interest rate on the loans is one of the lowest around I reckon at 4.49% and I was about to ask with which bank, but I just saw you mention that you get it from CUA.

If you are holding shares for the long term, use minimal leverage if you can as it will help you to have a more relaxed psychology as you can be profitable with lower % gains on the portfolio as you don't have to make an extra 4.49% per annum. Leverage is a double-edged sword and if there is a downturn you will thank me for this advice/suggestion.

You mentioned that you are slowly de-leveraging with your profits. Good on you Knobby22, keep doing that and you'll be able to have peace of mind.


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## StockyGuy (17 April 2019)

I wonder if it's valid to say that those not using margin loan tend to go for stocks with a greater volatility.  Potentially they also don't need to be so worried about adhering to advice to have dozens of stocks to diversify.  The latter saves on transaction costs (and mental fatigue).

The person using a margin loan is forced to, to an extent, and many would regardless wisely choose to, hold the blue chips (or similar) - which without leverage often have a rather boring rate of return in the short to medium term (remembering you only benefit when you take over and above the 7% or so pa margin loan rate!).

Non-margin use is not necessarily conservative.  A non-margin user in fact faces risk of their own recklessness due to feeling safe from margin calls.  On flipside, they can also be intelligently adventurous and risk-taking in their stock choice in ways that that a margin user can't (or shouldn't).  Being without any leverage frees you up to be speculative.

I guess it all goes back to the idea that people should not trade with such small account balances that a successful day without leverage barely gives them enough profit to buy dinner with.

There's also a time for almost every instrument and strategy.  Even the rather maligned CFD has it's correct application.  I just wish damned IB, which I love, gave me margin as a choice when everything aligned for the right leveraged trade!


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## rnr (17 April 2019)

@StockyGuy
Are you talking about investing for the long term or a short term trade?


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## Zaxon (18 April 2019)

StockyGuy said:


> I wonder if it's valid to say that those not using margin loan tend to go for stocks with a greater volatility.



The typical, conservative investor would go for blue chips and not use a margin loan. So that's probably the majority of investors.  But I agree with the sentiment running through your whole post.



StockyGuy said:


> Non-margin use is not necessarily conservative.  A non-margin user in fact faces risk of their own recklessness due to feeling safe from margin calls.  On flipside, they can also be intelligently adventurous and risk-taking in their stock choice in ways that that a margin user can't (or shouldn't).  Being without any leverage frees you up to be speculative.



Yes. A very well-put statement, and one I can identify with.

When writing my For/Against list in a previous post, I suddenly had the answer as to whether margin loans were right for me, personally. I invest in a lot of small cap companies (in addition to others). These stocks wouldn't be eligible for margin loans anyway, and they are inherently more volatile.  In a sense, they have the return multiplication which margin loans give you (for better and for worse), but without the interest costs.

But volatile stocks are probably not suitable for the average investor.


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## StockyGuy (18 April 2019)

rnr said:


> @StockyGuy
> Are you talking about investing for the long term or a short term trade?




Hmmm more short to medium.  Long term investment, which sounds almost like buy and hold, probably means holding through big downturns and maybe even cyclical market crashes.  I think most would say long term investments should not be leveraged, or only to a minimal extent and that presuming you can get a very agreeable interest rate on the borrowed funds.


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## aus_trader (18 April 2019)

Zaxon said:


> But volatile stocks are probably not suitable for the average investor.



I am into small caps too and you are right, if you pick the right ones you can easily get double-digit and the occasional triple-digit winner in your portfolio without using any form of leverage. Picking the right ones amongst all the duds out there is the challenge .


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## tech/a (18 April 2019)

As I read this thread I see an aversion to leverage continually the FEAR of LOSS
comes across loud and clear. I hardly hear a whisper in the for camp.

I traded with *BT margin*** for over 7 years in the days of Tech Trader.
(Un Holy Grails Page 109-115 Nick Radge ). With a starting capital of
$30,000 and trading on margin as shown above Had an equity peak
of $479,000 and when I closed the system permanently $387,000
In 7 years Id increased my $30,000 x 12.69 Times in 7 years using
the power of *Leverage and Compounding*--that's  1,290 % Increase.

*WITHOUT TAKING ON MORE RISK!

**
https://www.bt.com.au/personal/investments/solutions/borrow-to-invest/bt-margin-loan.html
*
If you ran a business and if your serious this is a business you'd have various business loans
Overdraft,Leasing etc. This is one tool we can use to our advantage---*DONT FEAR IT!!*

Learn how to use and apply it CORRECTLY!

It *DOESN'T* mean getting $500,000 @ 7% to trade with --- with an equity of $25,000 and buying $500,000
of shares!! (This is an example insert whatever ratio)

That's how most here believe a Margin loan should be used.

FRUSTRATING.


*Everyone wants to be wealthy but think like PAYE tread mill workers. 

My last post on this unless its a question!*


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## aus_trader (18 April 2019)

tech/a said:


> I traded with *BT margin*** for over 7 years in the days of Tech Trader.
> (Un Holy Grails Page 109-115 Nick Radge ). With a starting capital of
> $30,000 and trading on margin as shown above Had an equity peak
> of $479,000 and when I closed the system permanently $387,000
> ...




Impressive numbers tech/a !



tech/a said:


> It *DOESN'T* mean getting $500,000 @ 7% to trade with --- with an equity of $25,000 and buying $500,000
> of shares!!




So true. Who can sleep at night with that kind of leverage...


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## tech/a (18 April 2019)

aus_trader said:


> So true. Who can sleep at night with that kind of leverage...




1000s do it every single day.
I do it.

But I do it with no more risk than trading my $X----Insert amount 
you use for me its 35K or max 6 contracts of the DAX.-- (Futures ).
Property at one time 12 at the one time often with zero down.
Just using gained equity.
Business with machinery all the time. (7 figures).

I sleep fine I've quantified the risk
Lived through 1987/1993/2008/9.
*I know how to avoid ruin---everyone should.
I know how to use other peoples money---everyone should.*


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## Garpal Gumnut (18 April 2019)

tech/a said:


> 1000s do it every single day.
> I do it.
> 
> But I do it with no more risk than trading my $X----Insert amount
> ...




I would endorse tech/A's approach IF

You have his attitude towards risk
You have his knowledge of risk
You are driven 
You are philosophical 
You enjoy a black swan paddling past for it's beauty not it's omens
You are willing to share your knowledge with others

I would not endorse tech/A's approach IF

His final destination is money
He has not read Marcus Aurelius
He has not studied infinity. 

Overall, taking the + and minuses, having read his posts for 15 years I believe I would endorse him as a tactician, technician and human being. 

Just my take on it, never met him, could be the greatest bastard or nicest bloke for all I know. 

gg


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## tech/a (18 April 2019)

GG
I agree

Most people are not Business minded and most people 
here shouldn't be trading.
80% fail in business and higher in trading.
Its not for everyone as a wealth creation tool.

I have no problems with Black swans--I'm a duck!


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## aus_trader (19 April 2019)

tech/a said:


> GG
> I agree
> 
> Most people are not Business minded and most people
> ...



Although I have some reservations about the risk taking / leverage, your sense of humour is outstanding !


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## kahuna1 (19 April 2019)

Leverage is a tool.

One that is akin to using a bulldozer in a confined space. An expert can do this, a not so expert person will destroy everything. *As a rule, margin is to be used even for very experienced well disciplined traders or investors at less than say 50% margin overall*. Even at that level, holding 200% of shares verses equity, should be ONLY short term and exceptional circumstances if you want to survive longer term.

A leverage for a portfolio at say 25% MORE or 125% or even 150% gives you a better chance and playing this off against returns IS a good thing. As happens, periodically markets correct and being invested at 200% at the wrong time, will occur if one is NOT adverse to leverage at extremes. NOT just our market extremes but WORLD market extremes. Australian equities are irrelevant in driving long term direction of global markets. USA is approaching 3 times, or 300% of the GFC lows, DOUBLE the highs of the PRE GFC period. DOUBLE. If we applied this to our market, ignoring other things, we should be  at an ASX 200 of say 9,500 to 13,000- so lets say 11,000 verses 6,300. We have and WILL and do under-perform the USA as does the rest of the world, for some very good reasons.

The things that MAKE markets and equities MOVE are quite simple on the MACRO side. Interest rates, on the fiscal side and goverment spending and taxes on the other. USA has decided NOT to pay for its elderly, pay for pensions, pay for healthcare and as such its now, 10 years after the GFC in a supposed recovery, running a deficit to GDP in spending of 4% of GDP. It is in itself on of the largest deficits ever run in the past 150  years outside of the GFC or say WW2. It is ignoring its debt level, the world is ignoring its debt level and when a taxpayer has $200,000- per tax payer DEBT ... and it does need to be serviced and the lower 80% of taxpayers have an income of a mere $35,000- PRE tax and $31,000- POST tax and social security, owing $200,000- and even servicing at 2% a $200,000- debt or $4,000- is being ignored  FOR NOW.

Perspective, and a very long term one is needed for any portfolio. We In Australia seem to have an idiotic fiscal concept that a BUDGET SURPLUS is needed. On one hand EU and Australia as life itself went from 72 years in 1980 tp close to 84 years so too did the RISING cost of living medically and pension wise and TAX verses GDP went UP by 2% or sso. It ROSE ...  to cover pensions and super and so too medical care. USA which operates on what is good for the 1% it FELL ... and FELL sharply. It went from 35% PLUS of GDP to 30%. The awful, sickening impact of this is NOT being as per normal fuller reported, but what is, is a disgrace and life expectancy instead of as it was in 1980 being close to number one, is NOW officially 78.6 years but clearly, easily 75  at best. Of course the top 1% even 20% can afford the worlds most expensive healthcare, bugger the rest and one side lives to 90 or so and the other is fast approaching  65 years.

Tax in the USA has fallen from 35% even 36% of GDP to 30%. Australian and EU and most others its risen by 2% of GDP and here,including super as one must its at 38% of GDP and EU around 40% of GDP.

Margin and leverage, is RELEVANT to the very big long term picture. USA is here also due to its actions into the GFC and it DOUBLED its debt in dollar terms, clearly has no intention to repay it, let alone service it and if one party stays in will cut what was free medical care to over65;s which is NOW not free and costs 20k per year for over 65's even further.  Quite a sick display of human greed verses the needs of the many.

It will, obviously  change at some stage and USA will ... get universal free or low cost healthcare. Either 2020 or 2024 will start the ball rolling. Either that, or outright revolt as even the most red blooded GOP party person crosses the lines even now for better healthcare. The impacts it will have on the healthcare industry in the USA where they see fit to charge 3,4,5 times the cost and the similar impact on healthcare provider sand insurers where a mere hospital bed costs 500% the EU average is obvious.

Other factor as to WHY in the USA ... is up here is two fold. One is it had interest rates at  ZERO for a very long time. Every law about finance and lending below inflation, out the window. EU is following and still there, but it was LATE to the game for its bonds and endured, despite a much better 40% of GDP int axes, it was paying 2-3% MORE for debt verses a nation which collected bugger all tax.

Interest rates at zero ... dividends at 3% or 4% ... is a massive stimulus.

Second factor is tax theft ... evasion, avoidance and Australia, we clearly loose 30 billion easily seen in tax theft. We have laws, ignored, we are changing them and will do so ... the money FLOWS ...  on the main to the USA. Gelncore os Swiss and one of the biggest evaders, but then we have oil companies, USA based, and the tech group where Microsoft with 3.6 billion sales books 3 billion via Bermuda and misses 10% GST let alone a profit margin over 25% and pays virtually no income tax.

Again big things, relevant if your going leveraged that MUST and WILL change mid term in say 5-10 years.

Lastly and perspective again, ignoring madness ... for 100 years the USA equity market traded in the 40% of GDP region. YES 40% of GDP .... two world wars, a few minor ones, good times and bad, but 40% of GDP. It NOW approaches as it did in 2000 .... a 125% of GDP level and in 2008 or late 200 that WAS the reality ... 125% of GDP until the goverment stepped in and prevented a fall in GDP of 1930-33 size.

USA equities are trading close to 300% OF The long term averages. WE are NOT ... but still inflated a fair bit as is the rest of the world.

If your going to use margin ... think about it !!

Perspective ... and very long term is needed in times of madness.

*USA is LIKELY to go higher, short term*, despite the long term perspective and its just a cautionary tale. Reason being is again linked to MACRO side and USA just cut its taxes and ignored its 99.99% of people and tax collected went from 17.5% on profits for companies to 7.5% ... despite the headline tax being now 21% verses 35%, GREECE had woeful tax collection and massive avoidance, USA makes it look like a novice. The 21% company tax rate is incompatible with HUMAN life, and whilst 35% headline rate was irrelevant when only HALF that was being collected on profits, instead of the loopholes being closed .... and the fall in collections being not a lot, it IS NOT the case.

Short term, USA I would like it to kiss say 3,150 on the S+P 500 in its madness. So that's still some ways away. But, eventually a more fair healthcare system will evolve, some USA sector are DOOMED profit wise when this occurs. But till then .... the top end dictates.

Buffet and his situation, he made or outperformed PRE 2000 via a good fundamental analysis of values of stocks. These stocks were valued at times close to 25% of GDP .... verses here at say 120% pf GDP one is 5 times CHEAPER than the other. His money I might also add is made up via 75% of it, his wealth, by NOT PAYING TAX. The companies he has his main investments in ? The largest tax evaders such as APPLE and Goldmans. Of course it legal in the USA, not really what they do raping the rest of the world and paying no tax .... but such is life.

This like most things cannot go on. Free trade does not mean rape the tax system of other nations and these are private companies .... greedy ones who need a few CEO's to spend time in jail.

Leverage here ? Well ... I have an interesting background and long term perspective. I would of course urge extreme caution. It would as experience tells me be wasted breath. Investing and trading is where someone makes a profit on a  stock, or even a loss and more likely a loss, and they become an expert.

Back into my hole .... just be cautious, or think about perspective. Less than 50% .... say 150% ... I could live with ... 200% borrowing half ? Risky and oh and DIVERSIFY ..... or perish. Buffet himself gets it VERY VERY wrong despite 60 years plus in the industry. His pre GFC buys were trashed to the tune of a zillion gazillion or so total loss .... TOTAL loss.


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