Thoughts on Margin Lending

[buns]

I’m a relatively safe investor. Pretty much only touch companies I know about and defiantly a fundamentalist. I very rarely take profits out and rather long term growth.

Anyway, over the past 3-4 months these safe investments have me about 35% up (SKC, NPX, RYM, PPL, XRO), yet my gains are pretty minimal as I have very little free cash to wing into them. Even though my returns are quite nice in proportion to my buying – I still feel I’m shooting my self in the foot, or leaving too much $$ on the table.

Being the safe guy, I still can’t really believe I’m considering this – but lately I’ve really been checking out some Margin lending (through ASB).. Even if I reinvested a large chunk of leverage into the same stocks listed above, they would only need to return half of what they have over a year, to validate the lending.

Thoughts on this? For the experienced investors out there, how did you control your first taste of decent gains on low outlays? I’m assuming a lot of people have got to hungry and burnt those selves not long after. That is my worry.

Tax – I realise there a lots of traders on this forum, hence are in the business of trading and pay tax on gains. I’m assuming you guys are all over the lending side of things as you can deduct the interest costs.

Even if you’re an investor, does margin trading lure you into paying tax on eventual gains? As the sole reason one leverages is to “Increase profits”..

Any opinions on anything related to this would be appreciated.

[shasta]

I’m a relatively safe investor. Pretty much only touch companies I know about and defiantly a fundamentalist. I very rarely take profits out and rather long term growth.

Anyway, over the past 3-4 months these safe investments have me about 35% up (SKC, NPX, RYM, PPL, XRO), yet my gains are pretty minimal as I have very little free cash to wing into them. Even though my returns are quite nice in proportion to my buying – I still feel I’m shooting my self in the foot, or leaving too much $$ on the table.

Being the safe guy, I still can’t really believe I’m considering this – but lately I’ve really been checking out some Margin lending (through ASB).. Even if I reinvested a large chunk of leverage into the same stocks listed above, they would only need to return half of what they have over a year, to validate the lending.

Thoughts on this? For the experienced investors out there, how did you control your first taste of decent gains on low outlays? I’m assuming a lot of people have got to hungry and burnt those selves not long after. That is my worry.

Tax – I realise there a lots of traders on this forum, hence are in the business of trading and pay tax on gains. I’m assuming you guys are all over the lending side of things as you can deduct the interest costs.

Even if you’re an investor, does margin trading lure you into paying tax on eventual gains? As the sole reason one leverages is to “Increase profits”..

Any opinions on anything related to this would be appreciated.

I use margin lending when the market outlook generally looks good.

As i'm using a form of leverage myself, i wouldn't invest in companies with debt (that's a no-no!), ie borrowing to invest in a company that's also borrowing. But most "wealthy" people get rich off other peoples money!

Margin lending magnifies your returns (& losses), so you do need a certain level of risk tolerance, & you do need to use stop losses/trailing stops.

You must protect your capital!

Margin lending costs, interest + loan fees are deductible if you're a trader.

But simply using margin lending does not constitute trading itself.

If you have other funds available to add to your margin lending a/c, or regularly put funds into the market then this could be for you.

My experiences are from both ends of the spectrum, i've made alot of money on some margin lending stocks, & have also had nasty margin calls.

I'm not currently using margin lending (although BPT is covered @ 60%), so i could use my holding to access additional capital.

I'm not in buying mode at present & have reduced my exposure to oil, by selling down some BPT & OEL, i believe we have a "correction" coming.

Something you can also do it put your existing stocks into a margin lending a/c which will give you access to additional capital.

I'm with ASB Sec myself, & have compiled a filter of all ASX margin lending stocks, looking for undervalued companies & those with chart reversals.

Generally the margin lending stocks are big enough to be in the main indices & therefore provide enough liquidity & are very tradeable.

Keep us up to date on how you go ;)

[STRAT]

Hi Buns
Mmmm,
Never have and never will.
I wonder how many safe investors on margin have lost their shirts in the last year?

[buns]

Thanks for your comments guys, quite handy. Quite a range of opinions – always good.

AA I also don't understand your logic. It kind of sounds like you are mixing in 2 definations of 'leverage' And your advice doesn’t really align to my portfolio either- longer term, easy to understand companies. Options related to some speculative gas in the ground from Mexico to stock pile in China doesn’t fit the bill.

Belgarion - I pretty much agree with you except the "near the bottom". Boy I would want to be 100% sure of the bottom before I leveraged. Remember I'm not a big chart guy so I wouldn’t pick the bottom through TA (golden crosses), hence you probably started leveraging a few months ago when those signs appeared, I'm just starting to look now as the good news stories arise and my current PF is trending up. I'm happy to pass up those gains for a more "sure thing" investment around now.

The reason that got me thinking about leveraging was - when was the last time interest rates were this low, in a bullish market? I haven’t even checked a margin lending rate but I'm assuming they are lower than normal, making margin lending more attractive?

Also, scanning the NZX right now. All your nice gainers (which don't seem to be finished) are paying nice Dividends, PPL, SKC, RYM.

[Oiler]

I’m a relatively safe investor. Pretty much only touch companies I know about and defiantly a fundamentalist. I very rarely take profits out and rather long term growth.

Anyway, over the past 3-4 months these safe investments have me about 35% up (SKC, NPX, RYM, PPL, XRO), yet my gains are pretty minimal as I have very little free cash to wing into them. Even though my returns are quite nice in proportion to my buying – I still feel I’m shooting my self in the foot, or leaving too much $$ on the table.

Being the safe guy, I still can’t really believe I’m considering this – but lately I’ve really been checking out some Margin lending (through ASB).. Even if I reinvested a large chunk of leverage into the same stocks listed above, they would only need to return half of what they have over a year, to validate the lending.

Thoughts on this? For the experienced investors out there, how did you control your first taste of decent gains on low outlays? I’m assuming a lot of people have got to hungry and burnt those selves not long after. That is my worry.

Tax – I realise there a lots of traders on this forum, hence are in the business of trading and pay tax on gains. I’m assuming you guys are all over the lending side of things as you can deduct the interest costs.

Even if you’re an investor, does margin trading lure you into paying tax on eventual gains? As the sole reason one leverages is to “Increase profits”..

Any opinions on anything related to this would be appreciated.

Buns

I have used margin trading/borrowing over the last 12months and as it is now playing out on the market, quite successfully. :D

Example: Bought FBU March/April in the mid $5 range and sold out last Thursday in the mid $7 range. In that time bought in on the SPP and had a dividend payout that more than covered my interest charges.

From that example I think you can see that Margin borrowing can be a winner......... I would not leverage to the hilt where you can get margin calls regularly.

I am buying solid companies that have cash and are paying dividends and will continue to do so.

Even though I have taken a chunk of my money off the table with FBU, I think/hope I will have a buy back opportunity soon.

[dartMonkey]

Leverage with options.
Let's take last Monday as an example: -
PRC 1.13 low
PRCOA 25.5
If you thought it was going to rise. Tuesday highs: -
PRC 1.19 ... 5.3%
PRCOA 28.5 ... 11.7% rise
Today: -
PRC 1.17 - 3.5%
PRCOA 26.9 - 5.5%

[voltage]

another way to leverage is to buy self funding warrants on the aussie market.
There are many long term ones up to 10 years. The dividends pay off the interest. Info on the asx.

[contrarianinvestor]

The problems with Margin Lending are:
- All the (overvalued?) blue chips are covered. Most undervalued small caps are not covered. It is dangerous to buy a share on a P/E of 20 (5% earnings yield) and paying 10% interest. In such a case you are relying on improved future profits and we all know how unpredictable the future is. If you rely on the share price increasing (i.e. bigger fool theory) then good luck.
- Banks tend to lower the LVR ratios precisely at the bottom of the market which means that you may be forced to sell precisely at the bottom knowing that you're selling undervalued shares.
- Margin Loans was a good idea in March. Higher share prices means higher risk. I know it is becoming a cliche but buy in fear, sell in times of greed. The fear in the markets are over.

[CJ]

In my "investor" accounts, I've never claimed the interest as an expense as this would expose my capital gains to tax. Why not and why. You are earning taxable dividends so your interest expense is deductible. Your capital gain still wont be taxable as it is in your investor account (assuming it truly is an investor account).

Replace shares with houses and dividends with rent and you will understand that you have made a mistake.

[shasta]

Why not and why. You are earning taxable dividends so your interest expense is deductible. Your capital gain still wont be taxable as it is in your investor account (assuming it truly is an investor account).

Replace shares with houses and dividends with rent and you will understand that you have made a mistake.

CJ

You'll find that Belg is right, you can't claim the interest expense, on just the basis that the dividend is taxable.

By claiming such a deduction exposes your capital gains to tax.

Belg is avoiding any "tainting", & quite frankly i wouldn't run the risk of having the IRD question any deductions.

[Mick100]

CJ

You'll find that Belg is right, you can't claim the interest expense, on just the basis that the dividend is taxable.

By claiming such a deduction exposes your capital gains to tax.

.

And you call yourself an accountant shasta?????

Cap gain is not taxable in NZ !!

[shasta]

And you call yourself an accountant shasta?????

Cap gain is not taxable in NZ !!

OK, "taxable profits/assessed income" then, same thing as CGT in principle really if your deemed a trader!

Being smug with the IRD won't help anyone though.

[CJ]

What are the interest rates charged on margin lending. Is it corrolated to other rates - ie on average about 2% hgher than fixed mortgages?

[buxlo12]

I am thinking of creating a LAQC to hold a leveraged portfolio of listed property trusts and a exchange traded. However LPTs and ETFs are PIE investments that pay tax within the PIE.
The money paid out from the PIE is excluded income. Does anyone know about the deductibility of interest against excluded income, can I do it or will the IRD be on my case.
I am also having a long term time horizon for this portfolio (5 years+) with very little to no trading. Will I attract a capital gain tax liability by claiming interest? Does the fact that I have created my portfolio in a LAQC have a bearing on a capital gain tax liability?

[shasta]

I am thinking of creating a LAQC to hold a leveraged portfolio of listed property trusts and a exchange traded. However LPTs and ETFs are PIE investments that pay tax within the PIE.
The money paid out from the PIE is excluded income. Does anyone know about the deductibility of interest against excluded income, can I do it or will the IRD be on my case.
I am also having a long term time horizon for this portfolio (5 years+) with very little to no trading. Will I attract a capital gain tax liability by claiming interest? Does the fact that I have created my portfolio in a LAQC have a bearing on a capital gain tax liability?

Why do you think you need an LAQC, if your not going to be trading?

LPT's & PIE's return dividends so where do you see you any losses coming from?

The interest charged on margin lending a/c's + the loan fees are deductible*.

I'm not up to speed on PIE tax arrangements, but if the tax paid income is excluded then you will need another source of income to claim any deductions*.

NZ doesn't have a Capital Gains Tax, so if you are referring to any gains you made if your holding for 5 years odd, then you will be deemed an investor not a trader, so your gains wont be subject to any tax.

Without knowing your situation, theres not much to gain by using a company at this stage.

Why do you think an LAQC is the answer, in all my time as an Accountant the structure that is least effective are LAQC's, which are more widely used by property investors who utilise depreciation claims (& National may crack down on that).

They can be used for share trading, but you really have to think it through before you start.

I had a group company structure which ultimately screwed me, when the rules changed, & unwinding it has exposed me to more tax than i anticipated.

Lastly, tax should be the very last thing you consider when investing, protecting capital should be your first priority

[CJ]

Why do you think you need an LAQC, if your not going to be trading?

LPT's & PIE's return dividends so where do you see you any losses coming from? The loss will come from the fact that PIE income is tax paid excluded income. Therefore, it this was the only source of income, the full interest cost would generate a loss which would be offset against PAYE income.


The interest charged on margin lending a/c's + the loan fees are deductible*.

I'm not up to speed on PIE tax arrangements, but if the tax paid income is excluded then you will need another source of income to claim any deductions*.

NZ doesn't have a Capital Gains Tax, so if you are referring to any gains you made if your holding for 5 years odd, then you will be deemed an investor not a trader, so your gains wont be subject to any tax.Shasta, you said above at post 13 that dividends are not enough to warrent claiming interest and be excluded from NZ 'CGT'. What you suggest here is different. I disagree with the statement in that post so have you changed your mind.

Bluxo - my understand in that while PIE income is excluded it is still 'income' for tax purposes so would justify claiming the interest expense subject to Shastas response on my question above.

However, I am note sure if there is any benefit in what you suggest:

- Why go through the hassle of a LAQC. Why not do it in your own name?? The bank will probably ask for a personal guarantee anyway (wont they?) which gets rid of the only benefit of limited liability.
- As you say, PIE income is excluded, though it has had tax withheld at 30%. As the company tax rate is 30%, you are in exactly the same position. The benefit of a PIE is where you are in the 38% bracket but the excluded income is taxed at the 30% rate therefore giving you a 8% margin by using a PIE.

Bump for my previous question - do the margin lending rates correlate of home floating rates and if so, what is the approx margin. Maybe I should just give ASB a call - I assume they will give me the historical position as well?

[shasta]

The difference from my earlier post, was by using margin lending, it attracts loan fees & interest, which if you have income related to the expenditure is claimable.

From memory ASB Sec margin loan rates are around 9-10%

[buxlo12]

Thanks for the replies Shasta and CJ.

Under normal circumstances setting up an LAQC to do my trading would be a waste of time and a unnecessary cost.
However I am about to cross the time limit and be classed as in a defacto relationship. This is the reason for holding shares and future share trading in a company.
Under relationship property all shares/property you owned before you were in a defacto relationship is still considered your property. For example if I sold some shares of Company A (that I bought before I was in a relationship) and then bought some other shares of Company B (I am now in a defacto relationship) the shares I own in company B would be considered relationship property. However if I own the shares in the LAQC before the 2 year time limit those share will not be considered as relationship property and any future share transactions by the LAQC will not change that.

Margin rates do vary depending on the OCR and other factors. They are ushally higher than home loan interest rates.
I think ASB are around 9%-10%
Just like mortgages it pays to shop around. The one I was thinking of using was Leveraged Equities. Their rates are alot closer to home loan rates. Lower rates = Higher profits :)

[fish]

Thanks for the replies Shasta and CJ.

Under normal circumstances setting up an LAQC to do my trading would be a waste of time and a unnecessary cost.
However I am about to cross the time limit and be classed as in a defacto relationship. This is the reason for holding shares and future share trading in a company.
Under relationship property all shares/property you owned before you were in a defacto relationship is still considered your property. For example if I sold some shares of Company A (that I bought before I was in a relationship) and then bought some other shares of Company B (I am now in a defacto relationship) the shares I own in company B would be considered relationship property. However if I own the shares in the LAQC before the 2 year time limit those share will not be considered as relationship property and any future share transactions by the LAQC will not change that.

Margin rates do vary depending on the OCR and other factors. They are ushally higher than home loan interest rates.
I think ASB are around 9%-10%
Just like mortgages it pays to shop around. The one I was thinking of using was Leveraged Equities. Their rates are alot closer to home loan rates. Lower rates = Higher profits :)

Current asb rate is 6.2 %

[CJ]

Current asb rate is 6.2 %So about 50bp above floating. Does it stay at around that margin.

Buxlo - Obvoiusly a loving relationship ;) . Just make sure she doens't get involved in it or it will be tainted. I would have thought a trust was better but I assume you want to offset the losses (due to interest) against wages. How aobut setting up a trust as well and loaning the the start up funds for the LAQC from the company. That way the company has no assets should it become tainted.

[buxlo12]

Buxlo - Obvoiusly a loving relationship ;) . Just make sure she doens't get involved in it or it will be tainted. I would have thought a trust was better but I assume you want to offset the losses (due to interest) against wages. How aobut setting up a trust as well and loaning the the start up funds for the LAQC from the company. That way the company has no assets should it become tainted.

It is a loving relationship but as it has moved a long quite quickly and I don't want to be stuck in a the Defacto boat with out a life raft :).



How aobut setting up a trust as well and loaning the the start up funds for the LAQC from the company.

I am guessing you meant loaning the start up funds for the LAQC from the trust.

I have thought about setting up a trust to do just that. However setting up a trust would be another cost and may not provide me with to much more protection from tainting. As long as I don't add capital into the company after the defacto relationship start date or get her involved with it with either time or money it should be safe from tainting.

A trust would be tainted by adding/gifting funds into the trust after the defacto realtionship start date the same as a company.

[CJ]

I am thinking of creating a LAQC to hold a leveraged portfolio of listed property trusts and a exchange traded.Did you go ahead with this? What are oyour thoughts on the proposed changes to the LAQC regime.

[peat]

Under relationship property all shares/property you owned before you were in a defacto relationship is still considered your property. For example if I sold some shares of Company A (that I bought before I was in a relationship) and then bought some other shares of Company B (I am now in a defacto relationship) the shares I own in company B would be considered relationship property.

The definition of relationship property is that which has a common use or benefit, so I would think that you're not correct here, as long as the partner derives no benefit from the shares i.e keep the income separate as well, then if they were in your name they could continue to be considered separate, as would any new ones you bought with money from the old shares or even from a separate bank account.
The house and chattels that you owned before which are now the family home obviously confer the partner a benefit and so too does the boat if she goes out fishing with you, but if the shares were yours and stay that way (that is they are not 'intermingled' with other relationship property) and dont confer any benefit on the partner then they remain outside the 'relationship property'. Thats what my estate planning and tax paper is teaching me (which is why I wouldnt have replied to this thread earlier). I'll let you know if I fail the paper ;+)

[peat]

In my "investor" accounts, I've never claimed the interest as an expense as this would expose my capital gains to tax. My "trading" account does however as I pay tax on this account.

I wanted to say that NZ Taxation 2010 volume clearly says under Eight Principles of Deductability "The CIR (Commisioner of Inland Revenue) will not deny an interest deduction simply because the taxpayer makes or intends to make a capital gain from the the asset acquired by the borrowed funds".
which of course doesnt actually allay your fears however in the regard of paying tax on capital gains, but I'm pretty sure theres no link between deductability and capital gain, so you're missing out on a deductible claim for no reason

There are a few factors as to whether your profits are considered capital gains or income but deducting the cost of interest isnt one of them. Its pretty much all about the intent at the time, and the amount of trading is a factor as well.

[Aaron]

I wanted to say that NZ Taxation 2010 volume clearly says under Eight Principles of Deductability "The CIR (Commisioner of Inland Revenue) will not deny an interest deduction simply because the taxpayer makes or intends to make a capital gain from the the asset acquired by the borrowed funds".
which of course doesnt actually allay your fears however in the regard of paying tax on capital gains, but I'm pretty sure theres no link between deductability and capital gain, so you're missing out on a deductible claim for no reason

There are a few factors as to whether your profits are considered capital gains or income but deducting the cost of interest isnt one of them. Its pretty much all about the intent at the time, and the amount of trading is a factor as well.

I would agree with Peat. The important issue is to have long term investments clearly separate from trading investments via separate companies or Trusts etc. The long term investments will still generate dividend income (much like residential property rental income) and the interest incurred on these would be a deductible expense. Claiming interest wouldn't necessarily cause your investments to be taxed but I guess there might be other issues in regard to your investments to consider.

[peat]

read this link to assist you going forward
http://www.ird.govt.nz/technical-tax/case-notes/2007/cn-20071031-share-transactions.html
you'll notice the judgement refers to two 'limbs' with sectional references , you may want to try and read those sections on the IRD web site under the Income Tax Act 2007

my text book NZ Taxation 2010 outlines three limbs that apply to transactions involving personal property which are not part of a business and where the asset is not trading stock where the realised gain will form part of the taxpayers income if it is caught by any of these limbs

Profit Making Undertaking or Scheme - an amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit
Personal Property Acquired for Purpose of Disposal - - an amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it
Business Dealing in Personal Property - an amount that a person derives from the disposing of personal property is income of the person if their business is to deal in property of that kind
So one needs to examine those and see if one would be caught by any those limbs

Some further notes.
It says limb 2 " does not apply to shares acquired with the intention of resale. It only applies to shares acquired with the purpose of resale.
So it is distinguishing between purpose and intention - something us non lawyers find a bit difficult. but later on the book says... "A definite intention to sell the property in the immediate future is not necessarily within the scope of the second limb because of of the distinction made in Plimmer v CIR 1958 when Barrowclough said 'purpose is usually, and more naturally, understood as the object which he has in view of selling withou having also an intention of selling, but, in ordinary language purpose connotes something added to intention and the two words are not usually synonymous'"


The Court acknowledges a number of reasons why a taxpayer would buy and sell shares without any regard to the tax consequence (which I take as meaning these are good reasons to buy and sell shares without being a trader or of incurring income tax)

To maintain the portfolios overall balance
To maintain the portfolios exposure in relation to particular sectors
To sell whn brokers issue a not of caution or warning
To sell when there has been a change in management
To sell when there has been a management buyout
To sell when there has been a take over offer
To buy shares when they are clearly undervalued
To sell share when market sentiment has over valued them in terms of the fundamentals of the company.

Bottom line though , your interest costs are deductible and especially so for non trading shares as the whole issue of dedcuctability centres around the expense being related to the production of taxable income in the form of dividends.

Hope this helps others in their decision making process of share profits being taxable income

[shasta]

read this link to assist you going forward
http://www.ird.govt.nz/technical-tax/case-notes/2007/cn-20071031-share-transactions.html
you'll notice the judgement refers to two 'limbs' with sectional references , you may want to try and read those sections on the IRD web site under the Income Tax Act 2007

my text book NZ Taxation 2010 outlines three limbs that apply to transactions involving personal property which are not part of a business and where the asset is not trading stock where the realised gain will form part of the taxpayers income if it is caught by any of these limbs

Profit Making Undertaking or Scheme - an amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit
Personal Property Acquired for Purpose of Disposal - - an amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it
Business Dealing in Personal Property - an amount that a person derives from the disposing of personal property is income of the person if their business is to deal in property of that kind
So one needs to examine those and see if one would be caught by any those limbs

Some further notes.
It says limb 2 " does not apply to shares acquired with the intention of resale. It only applies to shares acquired with the purpose of resale.
So it is distinguishing between purpose and intention - something us non lawyers find a bit difficult. but later on the book says... "A definite intention to sell the property in the immediate future is not necessarily within the scope of the second limb because of of the distinction made in Plimmer v CIR 1958 when Barrowclough said 'purpose is usually, and more naturally, understood as the object which he has in view of selling withou having also an intention of selling, but, in ordinary language purpose connotes something added to intention and the two words are not usually synonymous'"


The Court acknowledges a number of reasons why a taxpayer would buy and sell shares without any regard to the tax consequence (which I take as meaning these are good reasons to buy and sell shares without being a trader or of incurring income tax)

To maintain the portfolios overall balance
To maintain the portfolios exposure in relation to particular sectors
To sell whn brokers issue a not of caution or warning
To sell when there has been a change in management
To sell when there has been a management buyout
To sell when there has been a take over offer
To buy shares when they are clearly undervalued
To sell share when market sentiment has over valued them in terms of the fundamentals of the company.

Bottom line though , your interest costs are deductible and especially so for non trading shares as the whole issue of dedcuctability centres around the expense being related to the production of taxable income in the form of dividends.

Hope this helps others in their decision making process of share profits being taxable income

Just to simplify it further (ie from the IRD's perspective), there needs to be some nexus between the expenses incurred & your income.

The IRD will NOT allow deductions where there is no income, nor any chance of any - which is common sense really, there is no way the IRD will allow a system that does not favour them, ie allowing deductions & tax refunds where there is no income, you can still make losses so long as there is some form of income

[RRR]

Used up my revolving credit to the limit(almost) to buy shares. I think i am going to use margin lending (30-50%-i don't want to risk too much) with asb sec. Current rate is 6.45%(will only go up as the OCR increases). Feeling a bit nervous since i feel in uncharted territory. Wife is reluctant but managed to convince her. I will be claiming interest costs though.

[percy]

Used up my revolving credit to the limit(almost) to buy shares. I think i am going to use margin lending (30-50%-i don't want to risk too much) with asb sec. Current rate is 6.45%(will only go up as the OCR increases). Feeling a bit nervous since i feel in uncharted territory. Wife is reluctant but managed to convince her. I will be claiming interest costs though.

there are 2 competitions running on Sharetrader;1 on NZ market,the other on Aussie.Check them out.I think you will see approx 80 or 90% of entries have lost money.With margin the loses will be alot higher.Most posters have been following the sharemarket for a good number of years.It is very difficult to pick winners when the market is dropping.There are 3 rules to buying shares.
Rule 1 donot loose money, rule 2 donnot loose money, rule 3 read rule 1 and 2. So be careful.

[RRR]

Thanks for the good advice Percy. I did look at the competition and most of the portfolios are speculative!! I am a newbie still and don't have the experience which many of the posters in this forum have. My aim was to purchase shares on margin and pay it off in full from my income within 6-12 months-i can easily do that if i am borrowing only 10-20K. I would buy only stocks with good and reasonably stable dividend yield.

May be i should wait!!

[percy]

Thanks for the good advice Percy. I did look at the competition and most of the portfolios are speculative!! I am a newbie still and don't have the experience which many of the posters in this forum have. My aim was to purchase shares on margin and pay it off in full from my income within 6-12 months-i can easily do that if i am borrowing only 10-20K. I would buy only stocks with good and reasonably stable dividend yield.

May be i should wait!!

No.Just take your time,involve your wife , and buy 1 share every couple of months.Buy say $2,000 worth.That way you are doing it out of earnings.Each share you buy ,buy it with the view you are going to hold it for 10years or more.You choose 1 and next one is your wife's choice.both of you have to write down what the company does,will it pay you a dividend and where you see the company going and your reason for buying it.keep a note book and you can refer to it later to see if the reasons still hold true.Sometimes you buy a good share,you are right but the price goes down and if you have it on margin you have to sell.Owning it outright gives you finnancial independence which I think it is all about.Should you find you have 4 out of 5 right in a year's time,then you could look at margin.
l

[RRR]

After much thought, decided against using margin. Already has enough leverage using revolving credit home loan. I will stick to regular investing and have been doing that ever since i started investing. I think I was becoming greedy!! Not good. Thanks once again Percy.

[buns]

Pretty sure I posted a similar thread to this a while back, when I was fresh to the whole idea of lending to invest.

Looking back, I'm stoked I never touched it. I thought it was the perfect time, interest rates were low and it seemed the recovery was in full swing. Well we still haven't 'swung', I would have been hit with margin calls and pretty much every share I was thinking about.

I think it's just a patience thing. To eager to get in and get off to a quick start, thinking you don't have enough $$ to compound up into some nice sums.

I'm learning every day, but the big thing I've got better with over the last year is patience. If you can't be patient enough, and just work on building up your own capital, I think the chances of you being patient on any shareholdings is minimal.

Bruce covers both of these topics in his latest entry - http://www.stuff.co.nz/business/blogs/stirring-the-pot/4041974/Investing-and-concentration

The guy knows a whole lot more than me, but if you are new to his blogs, read them with care. He's a smart chap, however conjures up some Farley bizarre ideas. I personally think the guy is a knob end, some of his questions he comes up with at AGM's are totally pointless, but he turns them into big deals and then asks other shareholders to follow them, and raise there voice. He seems to go out of his way to be negative towards everything. Will leave it there..

[h2so4]

Pretty sure I posted a similar thread to this a while back, when I was fresh to the whole idea of lending to invest.

Looking back, I'm stoked I never touched it. I thought it was the perfect time, interest rates were low and it seemed the recovery was in full swing. Well we still haven't 'swung', I would have been hit with margin calls and pretty much every share I was thinking about.

I think it's just a patience thing. To eager to get in and get off to a quick start, thinking you don't have enough $$ to compound up into some nice sums.

I'm learning every day, but the big thing I've got better with over the last year is patience. If you can't be patient enough, and just work on building up your own capital, I think the chances of you being patient on any shareholdings is minimal.

Bruce covers both of these topics in his latest entry - http://www.stuff.co.nz/business/blogs/stirring-the-pot/4041974/Investing-and-concentration

The guy knows a whole lot more than me, but if you are new to his blogs, read them with care. He's a smart chap, however conjures up some Farley bizarre ideas. I personally think the guy is a knob end, some of his questions he comes up with at AGM's are totally pointless, but he turns them into big deals and then asks other shareholders to follow them, and raise there voice. He seems to go out of his way to be negative towards everything. Will leave it there..

Well it's all a reason why you would only purchase when you had a margin of safety but that is a Graham concept that probably goes beyond Bruce.

[percy]

Pretty sure I posted a similar thread to this a while back, when I was fresh to the whole idea of lending to invest.

Looking back, I'm stoked I never touched it. I thought it was the perfect time, interest rates were low and it seemed the recovery was in full swing. Well we still haven't 'swung', I would have been hit with margin calls and pretty much every share I was thinking about.

I think it's just a patience thing. To eager to get in and get off to a quick start, thinking you don't have enough $$ to compound up into some nice sums.

I'm learning every day, but the big thing I've got better with over the last year is patience. If you can't be patient enough, and just work on building up your own capital, I think the chances of you being patient on any shareholdings is minimal.

Bruce covers both of these topics in his latest entry - http://www.stuff.co.nz/business/blogs/stirring-the-pot/4041974/Investing-and-concentration

The guy knows a whole lot more than me, but if you are new to his blogs, read them with care. He's a smart chap, however conjures up some Farley bizarre ideas. I personally think the guy is a knob end, some of his questions he comes up with at AGM's are totally pointless, but he turns them into big deals and then asks other shareholders to follow them, and raise there voice. He seems to go out of his way to be negative towards everything. Will leave it there..

Buns,great post.I think we all react to the pressure of debt differently.To some it is great motivation,to others it leads to depression.A few years ago Postie Plus appointed Ron Boswell as chief executive,replacing consevative accountant trouble shooter Paul Young.Young is a dow man.Boswell had a good retail CV working in Aussie.Man can he talk the talk.I read what he said and thought this company is in a strong finnacial position and Boswell will achieve great things.I was not alone thinking this,and noted Salvus Investments brought a large parcel at this time.I brought 49.000 shares at just over $1 and had considered the investment was so compelling I considered buying 200,000 on margin.As I have no borrowings it was only stubborn pride that stopped me going a asking for a loan.Well the long and short of it was Boswell could not walk on water,{in fact he had trouble passing water}and I sold out at 90 odd cents loosing $10,000.
I hate to think what I would have lost on margin.I noted Salvus also sold out.Postie Plus shares are about 33cents now.The other time I looked at margin I had 10,000 PGC shares worth approx $4 at the time. At the AGM the chairman spoke very positively,so I rang Marac{owned by PGC]and asked to borrow enough to buy an other 10,000 shares using my shares and the extra ones as security.No way they would not do it.Yes PGC shares did double.