Margin loan under my wife's name - help

[Garpal Gumnut]

Hmm, maybe this is an indicator of things to come...Retail mom and pop investors using leverage again...

CanOz

I had similar thoughts, CanOz.

Let's not deter them, money needs to move about.

I am predicting a big crash this year. This couple have a need to leverage up for it.

gg

 

[burglar]

I had similar thoughts, CanOz.

Let's not deter them, money needs to move about.

I am predicting a big crash this year. This couple have a need to leverage up for it.

gg

Are you all saying the sooner we get leverage,
the sooner we can stuff it up and learn the lesson?

I had used leverage in 1981
It was not a particularly good year.

The broker made money.
The tax man made money.
The Bank made money.

I broke even! Yay!!

 

[Mr J]

It all sounds like something a financial advisor would want to sell me.

 

[tech/a]

There is a place for margin ( leverage )

It is a two edged sword.
The market will prove the most savvy investors
Wrong more often than they are right.

So while the Author may be ( in his own logical way )
Believe he is mitigating risk I personally don't see it.

But this amazing challenge must be faced by investors
And traders.
Prepared as best we think we can.
Experience is the best teacher not
A thread on a website!!

 

[Trembling Hand]

I don't get excited with short term results and fluctuations within a volatility envelope..

I have no idea what a "volatility envelope" is.

.I'm here for the long run

Best way to do that is to know when and why your system works and when its not working. I doubt very very much you have a clue as to the last line. Really! To do it with leverage is relying solely on luck. You're certainly not the first and certainly not the last to take that approach but that doesn't make it the best way.

You have said you would,

appreciate guidance towards knowing better and improving investment strategies and techniques.

But I've already mentioned correct position sizing models, and Tech has mentioned how to use leverage and I've also said that you're increasing your portfolio heat to levels that will make a down turn painful but you haven't, it seems, been bothered to investigate what the hell I'm talking about. As such we will, as above, right you off and just take cheap shots from here.

Good luck.

 

[arruga]

​

But I've already mentioned correct position sizing models, and Tech has mentioned how to use leverage and I've also said that you're increasing your portfolio heat to levels that will make a down turn painful but you haven't, it seems, been bothered to investigate what the hell I'm talking about. As such we will, as above, right you off and just take cheap shots from here.

Yes, I have been bothered. There's an overload of info out there, and sometimes it's confusing for a novice. I had read a lot of diversification and tactical asset allocation and that is the strategy I had decided to adopt. Open to change and adopt better techniques once I understand an alternative better approach. On FFPS, like I said before, I don't fully get wheter or not it's conflicting with the asset allocation method I used....is it either or ? Or they are totally different concepts and can be applicable at the same time ? i actually can use the formula not to determine the number of shares to buy for each stock, but to work out the price at which to set a stop.....I'm trying to get my head around this.
Well, after being trashed here, one god outcome is that taking a margin loan seems a really bad idea. As a matter of fact, it seems that I need to go back to the basics and revisit my risk management strategy...position sizing, entry and exit triggers. Thanks anyway.

 

[skyQuake]

I think I can safely say most of the seasoned ones here have lost a bankroll or two in the early years.

Better to do that without leverage!

Also, stay away from "modern portfolio theory" and all that jazz. A lot of the theory out there is just theory that doesn't apply to real markets.

 

[cynic]

I think I can safely say most of the seasoned ones here have lost a bankroll or two in the early years.

Better to do that without leverage!

Also, stay away from "modern portfolio theory" and all that jazz. A lot of the theory out there is just theory that doesn't apply to real markets.

+1

A friend of mine currently lives in a caravan park and trades FX microlots with the limited funds at his disposal (he's currently living on NewStart allowance). Following a recent string of successes, he recently discussed the idea of using a credit card to bolster his trading capital in order to achieve his financial goals sooner (he hopes to become a professional trader).

I decided that rather than simply telling him the safest course of action, that it would be more appropriate to break the situation down into four separate scenarios thereby allowing him to decide for himself:

Scenario 1: Successes were a reflection of skill (not just a lucky streak). Financial goals are achieved by the gradual accumulation of trading profits.

Scenario 2: Same as Scenario 1 except financial goals are achieved much earlier consequent to credit supported upscaling of trading activities.

Scenario 3: Successes were simply a lucky streak. Financial goals are not achieved and trading capital is lost. Trader will need to enhance skills and save more money before achieving goals.

Scenario 4: Same as Scenario 3 except trader now has interest accruing debt due to use of credit card facility. Additional to skill enhancement, trader will need to service debt and save more money before achieving financial goals.

 

[Garpal Gumnut]

I think I can safely say most of the seasoned ones here have lost a bankroll or two in the early years.

Better to do that without leverage!

Also, stay away from "modern portfolio theory" and all that jazz. A lot of the theory out there is just theory that doesn't apply to real markets.

+1

gg

 

[arruga]

Also, stay away from "modern portfolio theory" and all that jazz. A lot of the theory out there is just theory that doesn't apply to real markets.

hey...thanks...that's clear advice...i would have thought that that was the way to go...what's the approach then that I should stick to ? Any name for that approach, system, techqnique ? Any links, books, authors you would recommend ? It seems that reading "everything" out there has created a mix of concepts from incompatible or opposing systems that I haven't been able to discriminate...for instance, FPPS that has been mentioned here, leads to portfolio concentration, whereas I had pretty much gotten crystal clear that the golden rule for risk management was diversification...therefore: confusion....need to focus on one school of thought, and block off the noise...which one ?

 

[burglar]

... therefore: confusion ...

Very confusing ... Diversification is double edged.
It is oft touted as useful to novices to prevent huge losses.
I found it unhelpful in the GFC as many baskets fell,
breaking most of the eggs.
But that was a rare event! Right!!




Diversification reduces risk ... but risk is related to reward!

 

[FlyingFox]

I think I can safely say most of the seasoned ones here have lost a bankroll or two in the early years.

Better to do that without leverage!

Also, stay away from "modern portfolio theory" and all that jazz. A lot of the theory out there is just theory that doesn't apply to real markets.

It maybe theory but it is applied to the market all the time. Not saying it is right but it is good to understand why it was developed and how it is used. Most of the "all that jazz" is used by large hedge funds etc. It is designed for particular purpose with particular models in mind. They have internal standards for risk v reward and diversification and not changing market conditions etc.

Useful in its place, probably not so much for retail investors. Good to understand either way.

Very confusing ... Diversification is double edged.
It is oft touted as useful to novices to prevent huge losses.
I found it unhelpful in the GFC as many baskets fell,
breaking most of the eggs.
But that was a rare event! Right!!




Diversification reduces risk ... but risk is related to reward!

True.

Also depends on how actively and passively you want/will manage your portfolio.

 

[Trembling Hand]

Most of the "all that jazz" is used by large hedge funds etc.


Useful in its place, probably not so much for retail investors. Good to understand either way.

Some irony in who's telling who there. Pretty sure skyQuake knows what hedge funds do.

 

[FlyingFox]

Some irony in who's telling who there. Pretty sure skyQuake knows what hedge funds do.

My most sincerest apologies to skyQuake in that case. No offence intended.

 

[Garpal Gumnut]

Hi
I got all my stock holding under my wife's name...for tax purposes obviously (she has no salary, so just income from dividends).
I wanna take a margin loan and keep investing under her name, but now gearing 50%....I can service the loan easily with my salary, but if I take the loan under my name using her holdings as 3rd party security, I cannot invest in shares under her name...Obviously I cannot take the loan under her name as she can not service the loan....what's the best way around this ?
thanks
a.

Just to bring some reality to all this, amourges, what is your experience of risk?

Apart from this attempt to offset risk against taxable income.

Ever had a dangerous experience, weapon drawn against you, angry husband come after you, driven a car or bike to the max.

Ever been parachuting, played two up, thrown a lazy thousand on the Odd at roulette.

I'd be interested to know.

gg

 

[arruga]

Just to bring some reality to all this, amourges, what is your experience of risk?

Apart from this attempt to offset risk against taxable income.

Ever had a dangerous experience, weapon drawn against you, angry husband come after you, driven a car or bike to the max.

Ever been parachuting, played two up, thrown a lazy thousand on the Odd at roulette.

I'd be interested to know.

gg

Used to be and adrenaline addict in my younger years (parachuting, motorbiking and other sports, and all sorts of weird adventures in m world travelling). I guess the riskier decision i ever made was to leave my safe job, friends and country behind and come to the other half of the world to try my luck. After two years in NZ i quit my job without having any other job offer (it was a calculated risk though)...things turn out quite fine and am pretty happy over here. Back to the stock market, i gather a margin loan is not a good option for me, at the very least because it may require more time of me to be on top of it, which is not my objective...plus the prize is not worth the risk for my capital base. I don't want to become an active trader. I want to learn and be as knowledgeable as possible but my goal is long term. The outcome of this thread has been that I need to come back to basics and revisit some fundamentals and probably re-define my investment strategy. Even here a few posts from experts Have left me with more confusion: diversification vs concentration, tactical allocation, modern portfolio theory or other, set or not stops ? In the end i wanna set a system that answers:
1) how many stocks in my portfolio and position size ?
if FFPS, it limits the number of positions I can take, i.e. concentration, vs the diversification rules I had adopted....need to clarify this better...plus, FfPS requires setting stop losses....but not convinced if this done under a long term investment strategy
2) Entry trigger ? everyone says: buy at a discount...the whole point in value investing is buying below intrinsic value....however, i think that the estimation of intrinsic value is bull**** and its uncertainty is way bigger than the price variation due to market volatility at any one moment....therefore, I say...who cares the price, if the bet is long term growth? Some dollar cost averaging can be implemented to cater for volatility, which is what I did....not that it will make much of a difference in the long term anyway
3) Exit trigger ? Should I set stops ? They must be set if FFPS is applied, right ? As my bet is long term, should I move the stops up as the stocks grow (to breakeven stops then trailing stops)? if tactical allocation, no stops, just rebalancing quarterly or six-monthly...need to clarify this too
4) best way to protect assets, especially to lock in gains....are put options the best way to go ? Or just simple alerts or stops and liquidate positions ?

 

[burglar]

... Some dollar cost averaging ...

I am no expert, far from it.
But I think you have a firm grasp of the problems you face.


Be careful with "dollar cost averaging"; it works until it stops working!
Some are lucky and get far enough ahead while it is working!
They get to argue the point.

My take on averaging:
1). the share price needs to move significantly in both directions.
2). the company needs to stay solvent.

 

[skyQuake]

@ FlyingFox, none taken
Just in my experience any real gems are closely guarded and designed by quants rather than academics.

@ arruga
Gonna make some broad sweeping generalizations here, not financial advice etc
1) 10 or 20 if u can manage. Not too many as you will get overwhelmed. Setting smaller stops allows you to take "bigger" positions.
Diversification is not as effective as say maybe 5 or 10 years ago. Too many things move in sync these days.
2) Entry depends on your system: fundamental/macro? Technicals? Statistics? Arbitrage? Dartboard?
3) Its a lot harder to set stops for fundamental investments. But as Keynes said, "Markets can remain irrational longer than you can remain solvent."
Rebalancing every 6 months is for big whales that *cant* stop out because they own 20% of the company. Liquidity and rebals become a bigger concern than price.
4) Stops > alerts > put oppies (unless you have 2+ years exp in oppies and understand how/when the marketmakers try to screw u) > get out when it hurts too much
I know you're looking at long term, but worth having a look at technicals. Some of the simple stuff like stay away from sustained obvious downtrends.

Good luck

 

[FlyingFox]

@ FlyingFox, none taken
Just in my experience any real gems are closely guarded and designed by quants rather than academics.

I guess that is why it is called Financial Engineering and not Financial Science

 

[Garpal Gumnut]

I am no expert, far from it.
But I think you have a firm grasp of the problems you face.


Be careful with "dollar cost averaging"; it works until it stops working!
Some are lucky and get far enough ahead while it is working!
They get to argue the point.

My take on averaging:
1). the share price needs to move significantly in both directions.
2). the company needs to stay solvent.

With the greatest of respects I would disagree with you burglar.

He has as much grip on "risk" as Saddam Hussein had on the nuances of Shakespeare.

He is so risk averse, that he is paralysed.

He wants to cover all the bases, risk, portfolio, tax, with no prospect of loss.

He would be better to place all his moolah on an odd or even at Roulette at his local Casino. His chances would be 49%.

I do it regularly, weekly, at Jupiters, at 10.10am ( on Topless Tuesday at the Ross Island Hotel.)

So far starting with a $1000 bet and continuing with a $1000 bet I have accumulated $8000.

Life is risky. This joker is trying to eliminate risk.

It is even more risky at the Ross Island Hotel on Topless Tuesday.

gg