Borrowing to Buy shares

ClubMan said:
Once again, past performance is no guide to future returns.

A fool and his money...
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phoenix_n said:
Maybe a bit harsh ?
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Not harsh at all.

Only invest what you can afford to lose. I know someone who one day his portfolio was worth £120K. The next morning it was only worth £20K. It happens, and as Clubman says past performance is no guide.

Unfortunately many people haven't lived with a stock market or house price crash. This leads to a lot of them being totally naive. It's not if it might happen, but when it will happen. Many in UK/Ireland are in credit up to their eyes. The bubble will burst. Might be tomorrow, might be in 2 years, but it will burst.

So, I wouldn't borrow anything to invest in shares.
 
Smi1er said:
So, I wouldn't borrow anything to invest in shares.
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The thing is that whether the stock go up or down you still own the stocks so once you can pay back the loan you have not lost anything.

People have been heavily borrowing to invest in property in Ireland (speculating) for the past 5 years and whilst the rates of interest are lower , it is nonetheless just as risky if not more illiquid than stocks.

But i do agree that only invest what you can afford to lose.
 
phoenix_n said:
The thing is that whether the stock go up or down you still own the stocks so once you can pay back the loan you have not lost anything.
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Huh!? If I borrow €10K and buy shares with it then I have €10K worth of shares and a debt of €10K. If, the next day, the shares crash and are now only worth €1K then I can sell them and pay off €1K of the loan but I am still €9K in debt. On the other hand if I have €9K in savings then I can clear the loan with that but I have now lost €9K!
 
ClubMan said:
Huh!? If I borrow €10K and buy shares with it then I have €10K worth of shares and a debt of €10K. If, the next day, the shares crash and are now only worth €1K then I can sell them and pay off €1K of the loan but I am still €9K in debt. On the other hand if I have €9K in savings then I can clear the loan with that but I have now lost €9K!
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Yep. But one would have to be flexible on the short to medium term. If you were working on the short term and the shares dropped you have to be able to change your strategy to medium to long term.( i.e. do not sell at a loss. ) until the share price regained its value.

Yes there is risk involved but i am working from the assumption that worst comes to worst , you will have X shares that you can just keep until you regain your losses.

The sensible strategy would be of course to buy shares every month (disregarding commission for now)with what you would pay back for the loan. And that would give you your spread. That would work fine unless you anticipate a bull market.

Alternativley one could just put it in the bank, buy a volvo and be content to work to 65. :)

I am not saying that i am right,far from it, but just exploring ideas.

Your logic above can be applied to any investment (eg property) so your 'huh' remark is a bit unkiind.
 
The thing is that whether the stock go up or down you still own the stocks so once you can pay back the loan you have not lost anything.

To quote Jim Rogers - There is no such thing as a paper loss. A paper loss is a very real loss.

But one would have to be flexible on the short to medium term. If you were working on the short term and the shares dropped you have to be able to change your strategy to medium to long term.( i.e. do not sell at a loss. ) until the share price regained its value.

Yes there is risk involved but i am working from the assumption that worst comes to worst , you will have X shares that you can just keep until you regain your losses.

This aversion to taking a loss could put you in dangerous places. Shares don't always bounce back. To quote Rogers again - the first loss is the best loss. Keep them small.

If you're investing for the long run and are not bothered about the vagaries of the share price movements, fine - buy and hold. But you seem to be suggesting that you are hoping for some short term gains (trading) but are willing to hold on for the long term (investing) if things go against you. That's a high risk combination. It sounds a bit like the old Wall st. joke that a long term investment is a short term speculation gone wrong.

Not taking a loss is a bad habit to get into. Most of the time, you'll get away with it, but eventually something drastic will happen and you'll be in trouble.
 
Would agree with the above two posters. If your strategy is to come out ahead by year end (short term) then make sure you have a stop loss in place to cut your losses if the trade goes against you. Avoid borrowing and use a margin account instead (forcing you to cut your losses if the loss exceeds the margin). No borrowing costs and losses are limited to the margin.

Otherwise you are investing for the long term (buy and hold) in which case, I would still avoid borrowing. Try saving and buy more stock whenever the price is favourable. The market often over-reacts to certain events (e.g. profit warning, accounts revisions etc.) and if you are happy with the long term direction of the company these can present good buying opportunities.
 
Cheers. Only a rookie at the moment so happy to take on any advice.

room305 said:
Would agree with the above two posters. If your strategy is to come out ahead by year end (short term) then make sure you have a stop loss in place to cut your losses if the trade goes against you. Avoid borrowing and use a margin account instead (forcing you to cut your losses if the loss exceeds the margin). No borrowing costs and losses are limited to the margin.

Otherwise you are investing for the long term (buy and hold) in which case, I would still avoid borrowing. Try saving and buy more stock whenever the price is favourable. The market often over-reacts to certain events (e.g. profit warning, accounts revisions etc.) and if you are happy with the long term direction of the company these can present good buying opportunities.
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Somebody mentioned us shares

Don't die holding them. --------------- Your estate (the part of it in US shares) will be subject to US estate tax 0f 50%.
 
phoenix_n said:
ClubMan said:
Huh!? If I borrow €10K and buy shares with it then I have €10K worth of shares and a debt of €10K. If, the next day, the shares crash and are now only worth €1K then I can sell them and pay off €1K of the loan but I am still €9K in debt. On the other hand if I have €9K in savings then I can clear the loan with that but I have now lost €9K!
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Yep. But one would have to be flexible on the short to medium term. If you were working on the short term and the shares dropped you have to be able to change your strategy to medium to long term.( i.e. do not sell at a loss. ) until the share price regained its value.

Yes there is risk involved but i am working from the assumption that worst comes to worst , you will have X shares that you can just keep until you regain your losses....
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I think there's a flaw in your assumption. The worst case scenario is that the company you hold stocks in goes bust. Happened to many during the dot com boom and happened to many before that as well. Then there is no long term strategy. All your (borrowed) money is gone and the bank is knocking at your door...
 
And a second worst case scenario is that the share price drops hugely, and somebody decides to take the company private and manages to purchase enough shares at a huge discount to what you originally paid. You are then forced by law to sell your shares at this price, which is way less than you originally borrowed. Again there is no possibility of a long term strategy
 
Hi all, Just one more cliche - 'the day you buy is the day you sell' ie. Stocks look pretty fully priced at the moment, so how much capital appreciation up ahead?

Be slow about getting your revenge in first, so I'd be inclined to wait for the next wobble/downturn before buying in. Maybe I'm arguing that investors should be selling at the moment.

Wisdom is 'you don't borrow what you can't afford to lose'. Excellent cautionary advise in previous posts above
 
Never borrow to buy shares. If you cannot afford to lose the money don't get involved.
 
kirvos said:
Stocks look pretty fully priced at the moment, so how much capital appreciation up ahead?
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id like to know on what do you base this opinion too? tis a serious generalisation....you are implying that you can time the markets...nobody can.
 
Hi, I can say the ISEQ is just beneath a record high, as is the Dow. I think the Irish market is working off a p/e of about 15, which is as expensive as it's ever been. The ISEq did dip 8pc last May./June is bout of nervousness - albeit the market climbed steadily upward since, up to and through Xmas, ( does anyone know why?)

Since the new year, there are signs of the volatility factor rising again, meaning greater market swings as sentiment/fear takes a more central role.
Over the last 4 years the ISEQ has gained about 25pc p.a. on average (roughly). That is major capital growth.

I would tend towards being a seller than a buyer, given above. Either way, you pay your money and you take your chances.
Managing risk (downside) has to be central in any strategy.

Every time you buy or sell, you are 'timing the market', so I don't see how can NOT but time the market. Interesting debate.
 
kirvos said:
Hi, I can say the ISEQ is just beneath a record high, as is the Dow. I think the Irish market is working off a p/e of about 15, which is as expensive as it's ever been. The ISEq did dip 8pc last May./June is bout of nervousness - albeit the market climbed steadily upward since, up to and through Xmas
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The ISEQ is just an index - who cares what value an index is at when you're buying individual companies? I only ever use indices to measure my own investment portfolio performance, otherwise they can be ignored.

Also - indices are often trading at or just beneath record highs, that should never put you off buying shares where sufficient research into a particular company has been completed and a purchase decision made.

Final point - there are a lot of equity investment opportunities outside the Irish market.
 
The ISEQ is just an index - who cares what value an index is at when you're buying individual companies? I only ever use indices to measure my own investment portfolio performance, otherwise they can be ignored.

I once read that of a stock's move, 31% can be attributed to the general stock market, 12% to the industry influence, 37% to the influence of other groupings and the remaining 20% is peculiar to the individual stock.

The author of that research was writing in the 1960's. One can argue it's outdated or that it is absurd to be so specific on such a subject. But one thing is certain - the value of the index is important and dismissing it as an irrelevance will get most investors/traders into trouble.
 
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