Raising Capital

[RodC]

Hi tech,

I'd be interested in seeing a a thread on releasing equity. I used equity in our home to get started in property investing, but have always used cash (and margin loans) for shares.

I'd like to see your ideas to get another perspective, because I may well have overlooked something.

Rod.

 

[kaveman]

If you have $100K in increased value in a home and do nothing with it its like having $100K cash in the bank earning no interest."

Not exactly true, it is invested in your bricks and mortar. These have been quite healthy returns of recent years. I have moved house a few times over the years upsizing as I could afford it. My last move I had to go slightly cheaper and live a bit further from city, but I am now mortgage free at a time when my income has dropped by 50%. In less than 3 years since buyiing, the value of this house has gone up almost 50%.

 

[tech/a]

Not exactly true, it is invested in your bricks and mortar. These have been quite healthy returns of recent years. I have moved house a few times over the years upsizing as I could afford it. My last move I had to go slightly cheaper and live a bit further from city, but I am now mortgage free at a time when my income has dropped by 50%. In less than 3 years since buyiing, the value of this house has gone up almost 50%.

Kave.

There is a difference.

In your case youre using the equity to improve the home type you live in---youre actually using the equity.
In the case I am highlighting people stay put and feel comfortable that their
$100K home they bought 5 yrs ago is now worth $250K.

There is 150K locked in their home that they cant have unless they sell for $250k and replace it with another $100K dwelling.
They would then have nett $150K

To be able to stay in your home and release the $150K or so to use in your quest for a better lifestyle and or retirement can be powerful---as you well know!

Yours is one way and very valid.
Question is do you sit back freehold and be happy with that?
If yes then fine.
If no then you have a powerful asset.

 

[The Estimator]

Tech,

No house, I'm only a young guy a year out of uni. I worked through uni but the money went straight back into uni and uni "life". So zero collateral. I have a couple of cars but they are both more of a liability than an asset. The equity thread does sound like a great idea though. I was thinking when I started this thread it would be good if there were a few more threads on methods of capital raising. Its all well and good to have the skills to be a successful trader but without maximising trading capital your wasting time and money.

Cheers

John

 

[mime]

I wouldn't recomend borrowing to trade stocks unless you are very skilled. Remember that although the rewards are more. Losses can be very heavy.

 

[tech/a]

Mime

That is true.
But then borrowing for any financial venture could also be seen as very risky.
We know 95% of small businesses go broke.
We also know that many of those have borrowed and there would be many who havent/or didnt and died as they were undercapitalised.
How many people who borrow money for anything understand Risk/Reward?
How many would not enter into their venture if they did?
How many would have survived their disaster and continued in profit had they been fully versed?

This is a great topic and one I havent seen discussed in any detail anywhere.

 

[money tree]

what is the motivation for borrowing?

is greed suggesting you are 'missing out' by saving up?

if you were a good trader to begin with, wouldnt you already have capital to trade?

or are you falling into the "if I had more money I could trade better" trap?

 

[money tree]

Your insinuating that trading is gambling

I dont need to insinuate anything. The stats prove it.

97% of traders go broke.

The casino's house edge is 3%.

Coincidence?

SOME people can trade. 97% cant (and are therefore gambling)

On the other hand, 85% of INVESTORS make money (due to long term markets rising)

The biggest favour you or I can do for budding traders is NOT to encourage them, but to show them the truth, and that is that trading is extremely hard, with very low odds of success. It is not like plucking 50's from a tree as some pretend.

 

[Milk Man]

The biggest favour you or I can do for budding traders is NOT to encourage them, but to show them the truth, and that is that trading is extremely hard, with very low odds of success. It is not like plucking 50's from a tree as some pretend.

Who would pretend such things Money Tree? :

 

[Smurf1976]

There is also a very significant non-economic value, that of security, in owning your home outright with no debts.

 

[tech/a]

what is the motivation for borrowing?

is greed suggesting you are 'missing out' by saving up?

if you were a good trader to begin with, wouldnt you already have capital to trade?

or are you falling into the "if I had more money I could trade better" trap?

Motivation leverage or it could simply be initial start up capital---many do it for small business why not this small business???.

I dont need to insinuate anything. The stats prove it.

97% of traders go broke.

The casino's house edge is 3%.

Coincidence?

SOME people can trade. 97% cant (and are therefore gambling)

On the other hand, 85% of INVESTORS make money (due to long term markets rising)

The biggest favour you or I can do for budding traders is NOT to encourage them, but to show them the truth, and that is that trading is extremely hard, with very low odds of success. It is not like plucking 50's from a tree as some pretend.?

Tree Thats not tradings fault its the WAY people trade that causes the statistics and ofcourse takes the shape of gambling.
I do agree that 95% of those 97% failures will be short term traders.
Most will ofcourse be under capitalised and as such make poor decisions.
I really dont think you can tar all traders with one brush and I dont think the way to help traders is to place the FEAR of ruin on a placard over their beds either.

Why dont you and others in the Financial Planning fraternity teach risk management?Why arent you posting here wads of information on money management on ways to mitigate risk and avoid being one of those statistics.

It seems your way of handling it from the post above is to simply discuss worst outcomes not proactive SOLUTIONS.

Is it that the Financial planning fraternity dont have the answers to the most basic of what I would consider BASIC and MANDATORY Financial advice.
Ist it the goal of advisors to make their clients money work for them and as such gain more clients through recommendation?

I see risk disclosure after risk discloure on EVERY financial product I've ever laid eyes on---ways to minimise risk---are just not known.

I asked a few friends of mine who are planners how to minimise my risk when trading------they had and have ABSOLUTLEY NO IDEA!!!!

Do you really suggest we just discuss how you can be ruined.

Is there no hope of being a successful trader? Is the exercise pointless?

What are the alternatives for those who wish to create REAL wealth using $100s of K---options? Instalment warrents?Cash in the bank?Super?

My view is that if you dont take care of your own financial freedom NO ONE ELSE WILL-----because they are trying to do the same as you and if they had the answer they would be doing it.

 

[tech/a]

There is also a very significant non-economic value, that of security, in owning your home outright with no debts.

True but is that enough at 55,65,75??

What is enough?
Owning your own home and a pension is pretty basic living---try paying the rates,water,electricity,gas,phone,food,petrol.

Burying your head in the sand of contentment doesnt give you the security a lifes work deserves.
Only you can determine who's making who the coffee!!!
(Financial ad on TV).

 

[Smurf1976]

True but is that enough at 55,65,75??

What is enough?
Owning your own home and a pension is pretty basic living---try paying the rates,water,electricity,gas,phone,food,petrol.

Burying your head in the sand of contentment doesnt give you the security a lifes work deserves.
Only you can determine who's making who the coffee!!!
(Financial ad on TV).

Agreed there tech but there is a need for balance. If I was worth, say, $10 million then there's no way that I would have mortgage on my house just to get an extra 300K (literally 3%) for trading with. At that level IMO the security value of the house becomes more important than a small increase in profit.

Of course if it's a matter of 50K for trading versus 350K if you mortgage the house then that is a different situation. But if the trading makes a decent profit then I think that most people in due course would feel far happier with the loan repaid and just keep trading using their own funds as capital (which would be pretty large by now if the trading has been profitable).

 

[The Estimator]

what is the motivation for borrowing?

is greed suggesting you are 'missing out' by saving up?

if you were a good trader to begin with, wouldnt you already have capital to trade?

or are you falling into the "if I had more money I could trade better" trap?

Am I missing something? Did all of the successful traders in here wake up with a pot of gold next to their bed? If I was a good trader wouldn't I already have capital? Even if I made 500% profit, 500% of zero is zero. Also how many of the 95% of failed traders perused online forums such as this asking for oppinions and studying others systems. Maybe I just fit into the greed category. This is the way I see it. I can put $750 into the market every month. With brokerage that means I need to make close to 10% before breaking even. If you had to make 10% before breaking even on your trades how profitable would you be. True maybe I should lay off for a while and learn the game a bit better. At what point am I classed as "experienced" enough to raise some capital? Or I could just sit on the $750 a month for two years. That will be productive. I really do appreciate the responses guys, even the negative stuff. I just don't feel any smarter reading posts like above. This all came about because I was thinking of getting a car loan and decided why not put the money into a real investment instead. I'm starting to think the car might be the better option. At least then I'll KNOW I'm going to lose the money.

Thanks to Tech and the rest of the boys for their rational responses.

John

 

[kaveman]

I would hazard a guess that most started small, even as long term investors. Trading seems to be one step on from this buy/hold method.
With a small amount of available cash i would look at starting a longer term view to trading, but then I have already made my point on this here before.

Trading seems easy, and maybe for some it is, but most would find that it takes a long time to learn, most importantly learning what suits you.

Treat trading like any profession and learn before you put your money on the line. There is no great rush as the market should still be here for years to come, and if it is not here just think of the money you saved by not being there if they pull the plug.

 

[mit]

what is the motivation for borrowing?

is greed suggesting you are 'missing out' by saving up?

if you were a good trader to begin with, wouldnt you already have capital to trade?

or are you falling into the "if I had more money I could trade better" trap?

MT,

It depends. You trade options which are leveraged instruments. Futures are another leveraged instrument as are CFDs. Borrowing for shares or using margin is just another way of getting leverage. You may have 40k to trade options another person might have 40k and borrow 60k to trade shares.

If you started with 5k and successfully doubled you money each year you would have 20k after 2 years. Good trading but hardly world shattering (oops forgot tax it would be about 12k). If your system has positive expectancy why not borrow.

Personally, If I started again I would start with CFDs and if I wanted to stay with equities I would move to margin lending

MIT