Leveraged investing (borrowing to invest)

[willy1111]

Let's see, Australia owes over 7 trillion dollars of debt. The US which has a population of over 300 million owes 21 trillion but of course, central banks will come to save the day by printing more money out of thin air, right? . We are so screwed.
http://www.australiandebtclock.com.au

Hmmm . . . this website http://www.usdebtclock.org/ says the total US debt is 71 Trillion with GDP 21 Trillion - so total debt is about 3.38 times gdp. Aus 7 Trillion with GDP of 1.7 Trillion so debt is about 4.11 times gdp.

Just looking at debt figure on its own doesn't show the whole picture. It needs to be taken into context by comparing to percent of income and interest rates. Interest rates have come off a lot in the last 30 years - and maybe that is the whole conspiracy theory of why interest rates are so low and will likely continue to be low - due to so much world debt.

 

[willy1111]

Get rid of derivatives/options/puts/CREDIT etc...They are the instruments that are causing Global Financial crisis in the first place. This whole obsession of centralizing everything and turning the sharemarket into a casino and drawing money from the future is a recipe for disaster.

Hmm I think the reason the GFC occurred was due to misleading and deceptive conduct. A turd was polished up and sold as gold. Once a bit of the gold was rubbed off and those that had bought the polished turd realised what it actually was - the proverbial hit the fan and trust was broken - bringing everything to a screaming halt.

 

[willy1111]

hmm...I wonder which asset class is about to fall by 30% hmm...

Appreciate you posting your views @Pixelperfect and curious to hear what is your philosophy of what to do with your own personal money?

With such an outlook I wouldn't think you would invest in shares. . . or maybe you are waiting for a big correction before doing so?

 

[Pixelperfect]

While this topic is really interesting you need to present it with a balanced view.

I agree the main issue is Power and Greed.
Starting with Governments and those who are voted into power.
They only gain power with popular policy and popular policy is very costly
Generally its more govt spending and less govt taxing.

Debt to GDP is a metric worth looking at.
View attachment 90390

Australia isn't on the worst list.
Nor is it on the best list We are at about 45% of GDP.

It is in the best interests of all countries to control world debt.
The sky wont fall just yet.
But it will feel like it has at times.

Well it depends on how you look at it, but we do have a problem, however, given that we live in a global environment and that the whole world is saturated by debt. Because of this, whatever happens in the US will have a catastrophic effect down here because of the rippling effect. It's the same way an earth quake happens or the raging tsunami which you only see until 10 minutes before it hits land. By then, the raging tsunami does an insane amount of damage taking everything with it but like all crisis, they start to happen where we think they are least likely to happen.

Our External GDP ratio is insane.
http://www.usdebtclock.org/world-debt-clock.html

 

[Pixelperfect]

Appreciate you posting your views @Pixelperfect and curious to hear what is your philosophy of what to do with your own personal money?

With such an outlook I wouldn't think you would invest in shares. . . or maybe you are waiting for a big correction before doing so?

. I have been stung myself and have learned a very valuable lesson. I got caught up in this casino without reading into it. The same mistake everyone is making, however, I am a beginner learned and said nope, I am not doing this crap again. If I continue to do this, I am just adding to the problem. I am now micro managing money and like to quatify how much money I have and only invest 5% of my total wealth. That way, my risk exposure is reduced and I only lose that much.

I learned a hard lesson and have lost over 100K because of this but luckily I am still here, still in a hole but I didn't do stuff that hurts someone else. I only hurt myself.

There is a reason why Buffet says to make money slowly. He must have learned the hard way.He doesn't do day trading for a reason. He also works even though he's almost 90.

You can invest all you want. My post shouldn't be seen as financial advice. As always do your own research, but building money slowly is far more satisfying and trust me, it's crushing to see your hard earned money evaporate into thin air.

Look at the price of bitcoin and ethereum. Yeah....those are going great aren't they?

 

[Pixelperfect]

Hmm I think the reason the GFC occurred was due to misleading and deceptive conduct. A turd was polished up and sold as gold. Once a bit of the gold was rubbed off and those that had bought the polished turd realised what it actually was - the proverbial hit the fan and trust was broken - bringing everything to a screaming halt.

It's a whole list of things, but derivatives WAS the main cause.

 

[tech/a]

I am now micro managing money and like to quatify how much money I have and only invest 5% of my total wealth. That way, my risk exposure is reduced and I only lose that much.

I learned a hard lesson and have lost over 100K because of this but luckily I am still here, still in a hole but I didn't do stuff that hurts someone else. I only hurt myself.

An interesting reply.

I feel you have been paralysed by a bad experience.
Investing 5% of your total wealth wont help you become financially independent.
Say $500,000 net worth 5% $25,000 100% return $25,000 each year for 10 Years
(Not realistic) gives you another $250K

Personally I've made my $$s all from debt and leverage and at times lots of it.
In 1987 I lost $450K and back then was everything I had. Avoided Bankruptcy.
Lost Property PPR Wife all savings -- personal pride.

Today I still use other peoples money --- understand risk and how to mitigate it.
Don't have to work but love the challenge of business and currently expanding
into other states ---I want to be involved.

PixelP If a bank loans me 100% of the cost of an investment at 5% and I sell it
5 years later for 300% I've made a crap load on their money with NO MONEY DOWN!

Each to their own.

 

[Pixelperfect]

An interesting reply.

I feel you have been paralysed by a bad experience.
Investing 5% of your total wealth wont help you become financially independent.
Say $500,000 net worth 5% $25,000 100% return $25,000 each year for 10 Years
(Not realistic) gives you another $250K

Personally I've made my $$s all from debt and leverage and at times lots of it.
In 1987 I lost $450K and back then was everything I had. Avoided Bankruptcy.
Lost Property PPR Wife all savings -- personal pride.

Today I still use other peoples money --- understand risk and how to mitigate it.
Don't have to work but love the challenge of business and currently expanding
into other states ---I want to be involved.

PixelP If a bank loans me 100% of the cost of an investment at 5% and I sell it
5 years later for 300% I've made a crap load on their money with NO MONEY DOWN!

Each to their own.

My financial situation is that my current liabilities are through the roof. I owe a lot of money to creditors so I don't have that much financial freedom.

 

[tech/a]

So this money is not generating any income its purely liability?

 

[willy1111]

An interesting reply.

Personally I've made my $$s all from debt and leverage and at times lots of it.
In 1987 I lost $450K and back then was everything I had. Avoided Bankruptcy.
Lost Property PPR Wife all savings -- personal pride.

Today I still use other peoples money --- understand risk and how to mitigate it.
Don't have to work but love the challenge of business and currently expanding
into other states ---I want to be involved.

PixelP If a bank loans me 100% of the cost of an investment at 5% and I sell it
5 years later for 300% I've made a crap load on their money with NO MONEY DOWN!

Takes a lot of back bone to bounce back from something like that . . . but winners never quit

Were you in the same business back then as what you are today?

How do you manage and mitigate risk differently now as opposed from that learning experience? do you keep LVR to a certain ratio like total borrowings not more than 50% of your total net worth, maintain a cash buffer of a certain multiple of loan payments like having 3 years worth of loan repayments/living expenses as a cash buffer to ride out any fluctuations in income/interest rates, etc.

 

[tech/a]

Similar.

I was in the Landscape Supply Business.
Trucks delivering product. We were the biggest re seller of Used Railway Sleepers
In Adelaide. I had a number of Commercial Properties rented to businesses who
couldn't turn a quid--so couldn't pay rent--so I couldn't pay the bank loans and
my business couldn't make enough to pay the 18% interest and the 6% penalty
interest. It smashed all businesses including mine!

At 33 went from genius to god help me.

Infact the acre lot I had on Finance was the only thing I kept.
Business was rubbish and my only 2 employees noticed that
we were asked how to build Retaining Walls on a daily basis.
So I learnt how to build walls. Soon construction meant more people
and I could survive.

Today we are the biggest in SA and are pricing subdivisions in Sydney.

My story with taking on debt is vastly different to most.
I noticed in 1995 that I could borrow 100% of a house mortgage
and I could rent it out and still make a profit.
My now wife who Id just met had a very modest home and I had a very
modest cash flow. So We could get the loan secured by her home.

Then Prices started to rise---sharply--as they did and equity increased in home
1 & 2 we bought 3,then 4 and eventually 10 by 2004. Mrs Ducks home went from $74k to
$345k as did most everything else.

So in 2006 as I'm selling off the odd home I feel secure enough to purchase new gear
and more gear for business and we expand from small domestic landscape type wall
builders into the Civil field eventually with 9 Excavators 4 Floats blah blah.
ONLY because I felt safe knowing I had plenty to cover any issues.
But strangely I never had to use any of those funds. It just gave me the confidence.

Today we only hold 3 properties all freehold.
Still plenty of Business debt but compared to profit its nothing really.

Without the banks money Id never have made it to where everyone wants to be!
Its not the money but how you use it.
Don't be afraid of it.

 

[Pixelperfect]

So this money is not generating any income its purely liability?

I've had to seek refuge until the storm passes though a loving family I have.I am currently not working because I've finished up project and since it's nearly xmas time, no one is going to hire me but I am still actively looking. Up to this point, life hasn't been kind to me(Last year I had a major accident where a drunk pedestrian walked in front of me. This is a sight no one should ever go through or witness. He is okay though thankfully) other than a few great moments and music which has always been there for me. It's my love.

 

[willy1111]

@tech/a thanks for sharing...how were interest rates in the 80's when you purchased the commercial properties? Did they suddenly increase from 12% to 18% or was it just a case of no rental income coming in?

You weren't concerned the same storm was going to come again when you started buying houses? Interest rates could have gone up, tenants trash properties, lose their jobs can't pay rent, long vacancies, etc.

 

[Triple B]

Im currently in a gold trade using 100x leverage! 6oz at $1223 USD per oz so $7338 USDworth of spot gold cfd. which is $10273 AUD Deposit margin is $82.39 Account bal $500 so actual leverage used is 20.5x When my trade is closed I will have 0 debt. Takes about 0.5 seconds for me to be debt free and usually it happens automatically when orders are hit.
As I usually close trades before 5pm NY time i pay 0 interest on this borrowed money.
If I do happen to hold a trade after 5pm Ny interest charged is around $1
So Pixelp . What do you make of this. Should I feel guilty for causing untold harm to the next generations and stop trading? Or should I continue to test my strategies and trading to learn a new skill so my 45 year old body that has been busting it physical arse can start to slow down and reduce the wear and tear , and hopefully retire at 55 after 35 years of gyprocking.

 

[Pixelperfect]

Im currently in a gold trade using 100x leverage! 6oz at $1223 USD per oz so $7338 USDworth of spot gold cfd. which is $10273 AUD Deposit margin is $82.39 Account bal $500 so actual leverage used is 20.5x When my trade is closed I will have 0 debt. Takes about 0.5 seconds for me to be debt free and usually it happens automatically when orders are hit.
As I usually close trades before 5pm NY time i pay 0 interest on this borrowed money.
If I do happen to hold a trade after 5pm Ny interest charged is around $1
So Pixelp . What do you make of this. Should I feel guilty for causing untold harm to the next generations and stop trading? Or should I continue to test my strategies and trading to learn a new skill so my 45 year old body that has been busting it physical arse can start to slow down and reduce the wear and tear , and hopefully retire at 55 after 35 years of gyprocking.

But it's just fantasy and made up. It will soon wear off like everything eventually and then you'll borrow more and take on more and more risks. lol the US does it. Hell, every nation is doing it because they can't help themselves. lol. It seems to be a human flaw and no wonder we have this big problem, but of course when there is silence that's when you have trouble. I for one, don't like this instrument one bit.

 

[Triple B]

No its not fantasy ,its real money Im trading and i respect that. If I forget to put a stop loss order on I can blow up the account real quick .I will owe the broker money . Real money. I understand I am trading the price of spot gold. I dont have the right to convert the trades into physical gold.dont want to . Physical gold is tricky to store safely and costs to have it stored for you.
these instruments allow you to borrow money from the broker which is paid back the instant the trade is close , rather than borrowing from the bank , going to the bullion dealer , buying the gold, storing the gold, going back to the bullion dealer , selling the gold , returning the money to the bank
I have only a mortgage and a car loan as Debt , no credit card or other loans, I understand the risks involved and accept them . Unfortunately some use these derivatives and have no idea. They lose thousand of $$ very quickly and take no responsibiliy. Its all the instruments fault, how can it be their fault!
If you have debt or gambling issues stay well clear of these derivatives

 

[PZ99]

Using debt to invest will never stop @Pixelperfect - not for as long as we have a taxation system that encourages debt to mitigate tax liability. I used debt to average down my falling PRG shares and broke even + divvies to boot. I've been in front from the sensible use of debt ever since

 

[tech/a]

@tech/a thanks for sharing...how were interest rates in the 80's when you purchased the commercial properties? Did they suddenly increase from 12% to 18% or was it just a case of no rental income coming in?

You weren't concerned the same storm was going to come again when you started buying houses? Interest rates could have gone up, tenants trash properties, lose their jobs can't pay rent, long vacancies, etc.

Yes interest was 12% but doubled with penalties

No wasn’t concerned particularly with the massive equity increases
Had a few places trashed.
Good Tennent stories as I handled my own evictions.
Never a problem with vacancies they were lined up and often bid for
The property by offering higher rent.
Sold the last non freehold in 2012 from memory.

 

[sptrawler]

The only way a working person can accumulate is with debt IMO, by the time they save the money, the opportunity has passed.
The system isn't geared to let the plebs rise and become wealthy, wages and cost of living follow each other, why would the Government want everyone wealthy?
Who is going to do the work, if everyone is wealthy?
Opportunities only happen so many times in your working career, if you have asset to borrow against, you can avail yourself of those opportunities.
If you have no savings and no assets, well don't worry everyone will feel sorry for you and bag those that did have savings and assets, so it isn't all bad.
Just remember, everyone is conditioned to dislike the successful ones and they aren't conditioned by those who have nothing. lol
Can you imagine sitting your child on your knee and saying, " whatever you do, don't become rich, don't be successful, because you will become a horrible person. Much better to stay poor and tell everyone how bad it is being poor, they will all sympathise with you and understand and try to help you".
Only my opinion, but I grew up in a poor family and worked my ar$e off to break the loop.

 

[tech/a]

Sp
There is a great deal of truth in your post
But I’ve found that treating people with respect
And helping those who need it very often from a distance
Balances the scales quite a bit.

The other thing that we have to acknowledge and be able to take
Advantage of is luck.
Right place Right time. It does happen
Right through life.But you need to be in the position
As you point out with something to kick off with.
In your and my case it was equity ( although not mine ) and cashflow.

The wealthy use other people’s money particularly in business
Why wouldn’t you.
The interest is tax deductible! Most assets are depreciated.

Opportunity comes to us all.
The majority see it
Very few know how to take advantage of it
Hardly anyone does anything with it!

Fear cripples most.
Shoulda
Woulda
Coulda!

——done that.