I have been an avid watcher of ST over the past year and only just starting to post. I have been learning some of the ropes with the sharemarket since I was 17 and started investing with CEN being my first purchase.
I am now 22 and after some advice from the seasoned pros please!
My situation now has changed with two rentals properties (80% financed) and between them they have a secured 30k flexi loan at 6% floating IR.
Over the years I have increased my share portfolio to include BHP CEN RYM and NZO funded by cash. Also held PRC : S
So my question: Do I start investing using my equity from my rental properties, I have invested 10k of it currently but should I expose myself more? should I be aiming for yields exceeding the IR or taking on higher risk and aiming for capital gains? NZX or ASX? I am young so I don't mind talking risks provided I can understand them.
If someone has some spare time I would love to hear stories from your investing experience. I live in Hamilton but often frequent Auckland and Wellington. I will shout the first few beers if anyone is keen!
Investing with debt - Opinions please!
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12-02-2011, 02:59 PMDarkRedInvesting with debt - Opinions please!
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12-02-2011, 06:18 PMshastaYou have done well to get to where you are at, especially at just 22.Quote:
Originally Posted by DarkRed
Borrowing to buy property & then leveraging the debt to buy shares is at the higher end of the risk scale, but clearly you have the tolerance for it.
Having access to "cheap" capital @ 6% is better than what the margin lenders will offer, so obtaining returns higher than this shouldnt be too difficult
A few questions for you to ponder?
1. Given your income level & the costs associated with the properties, can you invest in shares without having to sell up to fund living/property costs?
2. What risk tolerance do you have, would losing 50% cause problems, what kind of returns are you after, are you investing for the long term? (ie, do you need dividend income to repay the loans?) NB, Using the loan to invest in shares may make the interest deductible for tax purposes, do you have someone looking after the accounting side of the properties for you?
3. What sectors/areas (if any) are you interested in, or may know more than the average punter thru your choosen field of work?
4. Do you have any understanding of Technical analysis, & able to read/understand charts? (Essential for those wanting to "trade")
5. What is your current personal situation, do you plan to do an OE, already have a partner/married/kids etc (these all cost $$$)
6. I would urge you to try & attend a casual Sharetrader Meeting in Auckland, Christchurch etc - there are a vast number of posters who can help you out at these
When im back working & sorted, i'll start up the Wellington catch ups again (these are usually every 3 months or so)
7. Are you already in the Kiwisaver scheme, something to think about, if not already
8. Do you have short/mid/long term goals already set, ie, what got you thinking about getting into shares, always helps to have a target to shoot for
Lastly, navigate around this site & see what other people have asked previously on the newbie threads, plenty of wisedom & help around, as there are some very astute investors/traders on Sharetrader -
12-02-2011, 06:48 PMpercy
Darkred.
I am sure meeting others would be help to you.I know in CH_CH both selena and denpal are property people with the sharemarket as a hobbie.Successful hobbie.
You have a lot of debt with your rental properties.I would think it would give you greater finnancial independance being debt free with your shares.My reason for saying this is when things go wrong,everything goes wrong.One of your tennants leaves owning 3 months rent,you need to spend money on your rental,and at time your shares are down.**** happens.! and it does.I would think you would be best to stay liquid with your shares ,as you may want to buy another property,need funds in a hurry etc.I think you are showing good judgement with your shares.Do not worry a lot of old hands got caught out with PRC.Lastly shasta always gives good advice. -
12-02-2011, 07:04 PMDarkRed
Shasta,
Thank you for taking the time to reply to my thread. I have seen your name pop up a lot on these forums, would love to come along to one of the catch ups. My Girlfriend is based in Welington so im sure a visit down to the windy city would be easy.
I have pondered a few of these questions. So here is where I am at in more detail.
1. Funding investment - In my current position I have 2k per month free investment capital. A small amount of this gets consumed by the rental properties to cover my shortfall (around $300 a month). On the safe side I would have $1500 per month of investment capital.
2. Risk Tolerance - I could percivably lose 50% of my investment and still not largly effect cash flows (would make no difference to my personal cash). Risk profile = high. As for accounts I manage a cash book for my rentals and investments that is handed over to my accountant at the end of the year.
3. Areas of interest - I currently work in the Electricity Generation industry hence my holding in CEN. Interested in this area and the larger sector. Mining and Energy has been my latest watchlist, still learning heaps here!
4. TA - My understanding is more FA at this stage. I have read The Warren Buffet Way and getting through The Intellegent Investor at the moment. Have recently opened a CMC Markets CFD account purly to get a better understanding of TA. They offer a free one day seminar in Auk and heaps of learning material on their website with good charting software but still a real novice! Any other advice here?
5. Personal Situ - Currently have a girlfriend and planing to do my OE next year. Heading to London during the 2012 olympics. Hoping to keep my cash flows similar to current with slightly higer servicing costs with the rental properties (self managed at present).
7. Been in Kiwisaver since its inception maybe 13k now. I see this more as an insurance premium if I make a few big mistakes I will have some money when I can't work...hopefully not need tho!
8. Have short/mid/long term goals. Long term is to be financially retired by 35. Get into commercial property at some stage and try my entrpreneural side with some kiwi business ventures. Wouldnt mind giving Richard Branson a run for his money...thats the dream.
Sorry if this seems long winded. I would love to meet some of the seasoned pros so if there is an event in Wellington I will be there.
Currently don't know many people that are into investing so makes it hard to bounce ideas of others... -
12-02-2011, 08:13 PMshastaRe #1 = Are you wanting to sell your current holdings seeking better returns, or add to them thru regular "dollar cost averaging?"Quote:
Originally Posted by DarkRed
#2 - You seem switched on, so risk isn't an issue, i also look for higher rewards thru taking on higher risk, but my style is purely FA & i look for low EV style companies that the market hasnt cottoned onto yet.
#3 - Energy is such a large investment area, with oil, gas, unconventional gas, geothermal, coal, uranium + the utilities - plenty of stocks in this area
#4 TA wise there are many threads on here with info on learning sites etc & some very good chartist, there are also plenty of fundies who will post there analysis
#5 How are you funding the OE, what i mean is assuming the shares & properties are left ticking away at the rates you mentioned & those funds are not used, ie a long term plan, or will you simply cease the ongoing funding whilst travelling? seems you have your affairs covered, good stuff
#7 - Kiwisaver comment was just a thought i had, may as well take the free money, im going to just put in 2% in my next role
#8 Great you have such goals, i recommend you get/read Martin Hawes book, "Get Rich, Stay Rich" (& become financially free), otherwise next time you're in Wellington, let me know & you can have my copy.
Be good to meet you at a future Wellington Sharetrader event, there are some great people here in the Nations Capital! -
12-02-2011, 10:06 PMRRR
Well done DR-use leverage in this low interest rate environment. It is very rare in the investment world that the dividend yield is higher than the bank interest rate-so use it. For me, when using leverage cash flow is very important(dividends/rents) and I am more conservative when investing using leverage. Most companies now offer DRP at a discount and I gladly take it. Some people dont like it and they are often mature investors who dont want to reinvest dividends.
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13-02-2011, 01:16 PMDarkRedThanks for the input Percy. I am making sure I keep a certain amount of cash available for if i'm faced with problems like you are talking about. I have the 30k Flexi loan of which 10k is already invested so 20k left. I am thinking of investing another 10k and keeping 10 for the situations you described. Each month I will be putting in 2k to reduce the debt.Quote:
Originally Posted by percy
I am not looking at purchasing another house in the near future so want to get this money working somewhere else...
Still to risky and over exposed if "S*** Happens"? -
13-02-2011, 01:32 PMDarkRedShasta thanks again for your posts. I have spent some time looking at other threads with advice you have given other novices like me.Quote:
Originally Posted by shasta
#1 At this stage planing on holding my current position and potentially adding to them. Looking at increasing my holding in RYM, currently a smaller portion of my portfolio. In a post I mentioned i'm looking at investing another 10k. I am thinking two parcels of 5K. What would you recommend to be efficient sized parcels to Buy given the small capital available.
#5 The OE... This is the big one. My current idea for funding the OE is probably going to get beaten up. I am planing on reducing my debt before I go so I have 20k of the flexi available as a safety net for the properties and to fund the OE if I really get stuck (not my preferred option). The primary funding will be from my annual bonus at work, my accrued annual leave as a payout and selling my car. Should land me with 10-13 to play with. OE is going to be a working one!
#8 I have added the book to my Fishpond watchlist! Thanks for offer tho.
Looking forward to meeting people at the ST events. Keep me posted. -
13-02-2011, 01:41 PMDarkRedBelgarion,Quote:
Originally Posted by belgarion
Thanks for the examples. Any advice on sectors or specific company's worth looking into for opportunities like you have mentioned? Hopefully this isn't to cheeky a question...or is that a hint that NZR is worth looking at. -
13-02-2011, 02:30 PMPOSSUM THE CAT
DarkRed As A suggestion make your mortgages work harder for you if possible buy shares in the bank issuing them. There is with some of them some shareholder perks as well.
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13-02-2011, 05:13 PMshasta5k over two shares seems sensible, you wouldnt want to spread it any thinner.Quote:
Originally Posted by DarkRed
How you any ideas what you are looking at? -
13-02-2011, 09:05 PMDarkRedI am considering increasing my holdings in RYM.Quote:
Originally Posted by shasta
Any ideas on other companies that might suit my situ? Got some free time this week so will get stuck into a bit more research. -
14-02-2011, 12:09 AMshastaRYM is a well run company & a sector that is only going to get bigger when the baby boomers retire, so thats a good choiceQuote:
Originally Posted by DarkRed
I'll tell you about the companies im looking at, mostly off my LOW EV list, so you can check the relevant threads
MOX - Copper/Gold, Iron Ore, Manganese, Uranium, Bauxite
HLX - Iron Ore, Gold, Uranium, Base Metals
AYN/ARD - Silver near term producers ( i am very bullish on silver)
DGR - IPOing 3 companies covering Copper/Moly, Gold/Silver & Shale Gas - primary exposure to Gold & Copper/Moly
Others off the LOW EV list include: WCN, GES, GMM, CZN, LCR, FRY, AIV, AXE, SPQ -
14-02-2011, 02:56 PMSnoopyActually RRR I have to disagree with you. entirely The normal situation is that dividend yield is higher than the bank interest rate, and this is especially so in New Zealand market. Granted if you have only been investing for the last fifteen years then I can understand your perspective.Quote:
Originally Posted by RRR
SNOOPY -
14-02-2011, 03:08 PMSnoopyWelcome to Sharetrader Darkred. First of all I think you are asking the question:Quote:
Originally Posted by DarkRed
Do I start investing using borrowed money that the equity from my rental properties allows me to raise?
That is more than subtlety different from the actual question you asked. You may think I am just being pedantic, but I think it is very important to keep to the forefront of your mind the fact you are using borrowed money and not equity.
First point I would make is you need to be able to keep your cost of borrowing as low as possible. The cheapest source of funding I know in NZ is to borrow money against your property. This is a far better strategy than taking out margin loans to buy shares directly, so IMO you are on the right track here.
Point 2 is that as a shareholder or part owner of a company you are becoming a genuine part owner of that company if you hold shares in it. That means any debt that you take on to buy those shares effectively multiplies the debt position of that company as far as you are concerned. In turn that means the question 'how much debt should you take on' cannot be answered without a knowledge of the debt position of the company you are investing in.
Th third point you should consider, and it is surprising the number of investors who don't appreciate this, is that every time you take on a debt you are also taking on an investment clock which must be watched. In the simplest case your clock runs out when it becomes time to refinance your debt. If you are relying only on capital gains then almost certainly some time in your future investment career you will be forced to sell when the markets are not in your favour. Perhaps 24 out of 25 years you will be O.K. But it only takes one rogue year to derail a lifetime of investment planning. And don't think a stop loss plan will save you. A stop loss plan that works 95% of the time will likely bankrupt you during the 5% of the time it doesn't work. I would regard full business cycle (not just bull market) share liquidity as absolutely critical in your planning.
For this reason, IMO you should only borrow if the dividend income of the underlying investment will pay your interest costs. Often companies that have high dividend yields can be in some kind of trouble that puts that dividend flow at risk. So even here you are going to have to be really really careful. Take excessive care.
Regards,
SNOOPY -
14-02-2011, 06:39 PMDarkRedSnoopy, good point that it is actually "borrowed" money but secured with property equity, something I always need to remember.Quote:
Originally Posted by Snoopy
I am not 100% on your second point about my debt position multiplying with the debt position of the company I am investing in. Help me out a bit here since I am playing the novice card. Ill have a stab at it but what I am getting is that my debt position and the the debt position of the company has an effect on my total debt position as far as I am concerned? The value of my personal debt is small in comparison compared to the $ amounts of some companies or should this be measured as a total debt position?
Your third point also emphasis how little I know about TA! Something I need to work on for exit strategies.
Good technical opinions thanks Snoopy. Getting heaps of food for thought from you guys. -
14-02-2011, 06:44 PMDarkRedCheers Shasta. I will do some research over the next week and have a look around the threads on here. Watch out for the odd question...Quote:
Originally Posted by shasta
Thanks! -
14-02-2011, 07:19 PMshastaSnoopy wasnt refering to TA, in fact Snoopy is one of the more astute FA investors on Sharetrader!Quote:
Originally Posted by DarkRed
The point being, you do not want to get caught having to refinance your loans etc, during a down cycle where the shares dont cover the interest costs, or you are losing money. I dont see this as a problem, giving you arent using all your available capital & your income can support your debt
Keep asking qustions! -
14-02-2011, 09:09 PMDarkRedWoops that does seem to make more sense...cheers for the correction.Quote:
Originally Posted by shasta
In one of your earlier posts you mentioned you are bullish on silver. My current portfolio has no precious metals as part of it. What are your/others thoughts on holding precious metals? There are heaps of threads relating to holding precious metals but relating to this thread what are your thoughts of holding precious metals funded by debt? This would rely purely on gains in the price of the metals and inflation lowering the real value of the $ held as debt and all of this being greater than the interest charged? Possible? -
15-02-2011, 01:51 AMshastaMy interest in Silver especially over Gold/other precious metals, is based on:Quote:
Originally Posted by DarkRed
1. The additional US economic injection of $US600b into there economy @ $75b a month over 8 months started late 2010, this was following on from the earlier much larger injection (some $1T+) & as the US is still effectively printing money, & heavily in debt, i dont see there economy picking up for a while, therefore Gold/Silver remain a safe haven, even when the US economy picks up, it will likely start with a strengthing $USD, which will assist the Gold/silver price in $A/$NZ.
2. Silver has a far wider industrial use, from such items as miltary weapons, solar panels etc
3. Gold to Silver ratio is still much higher than it has been historically, meaning either Silver is undervalued or Gold is overvalued
4. AYN, ARD & CCU - due to start up production in 2011 & all have very healthy profit margins at current Silver prices, & AYN/ARD have undemanding market caps so should provide good share price returns by years end , plus there are Gold/Silver companies that pay a dividend, TRY comes to mind, plus mining investment companies like GMI & LRF. Nb, I have selected AYN in the 2011 ASX comp
5. Lack of pure silver mines in the world (most silver mined comes as a by product of Gold/Zinc/Lead mines), & scarcity of silver companies on the ASX (Peru & Mexico mine the most silver), especially since the large Silver producer CXC delisted
6. Retail demand, there is still a high demand for Gold & Silver coins & bars, the likes of the Perth mint tends to sell out of coins, plus both China & India have started buying Gold at a Govt & individual retail level, the mid/long term charts for Gold & Silver in $USD are still trending up (although the $USD weakness has had an effect)
7. Manipulation of the Silver market (in the past & present), & Silver shorts/longs, there is still alot of Silver being shorted on paper, & when these contracts have to be covered, & the physical silver bought could move the price up very quickly, read JBMurc's posts on the Silver threads, he has posted all the links etc & is another Silver bull, his posts are worth following.
Silver has had a decent run last year, but at roughly $US30/oz, i still believe whilst the Silver price will remain volatile, that during the 1st 6 months of 2011 we will see at least $US35/oz, & by years end $US40/oz+
Re your question about using debt to invest into precious metals, if you were buying the physical coins/bars then yes, you would be relying on inflation lowering the value of your debt & increased metal prices to provide a return in excess of the debt costs. Same with precious metal stocks that dont pay a dividend, but there are many resource producers who pay dividends who have silver as a secondary source of revenue.
Inflation will be an issue down the track, just as rising interest rates will when the economy turns & picks up as part of the natural economic cycle, but i see that as a minimum 18 months away. We are on a knifes edge of slipping back into a technical recession, so we havent got out of the fire just yet!
Do i personally think Silver will outperform the 6% financing costs of your loan, yes i do, but ultimately the market will decide what Silver is worth, not me! -
15-02-2011, 12:49 PMbuns
Two thoughts
1.
These Silver companies Shasta mentions probably do not return a dividend. So you are not getting any income to cover your borrowing costs, as Snoopy talked about. Also your lending options will be smaller as most of the time brokers do not offer margin loans on these types of investment which they call high risk.
You being (by the sounds of it) a newbie to silver, I think any exposure to this using borrowed equity should be small.
Shasta's bullishness on silver contains various macro economic factors, all of which can happen over any period of time. I wouldn't feel safe sitting on an investment (with no divys), limited knowledge, using borrowed funds any longer than short/medium term. I don’t think anyone can be certain silver will turn around in that timeframe.
2.
You may hear some stories on hear how easy it was to loan/invest coming out of the recession. Be careful what you take from this.
It’s easy to look back now and say how easy this was (borrowing to cover yields), but no one was ever sure we were out of the recession. A lot will tell you in hindsight they knew we were on the otherside and it was time to invest. I think a fair chunk of people would have thought the recession was over earlier than it was, and got stung massively borrowing (mainly with margins), but not many will ever share those stories.
I was so very close to buying a heap of NZX shares on margin at the end of the recession, and opted against it. Instead I only bought half the amount of NZX shares I originally intended on and used my other half to buy into more risky ASX companies.
So this gave me the same potential return as borrowing, but was using all my own capital. You could adopt the same approach, with the high risk companies being in something like Silver?
You will be amazed at how ‘low risk’ some of these small caps are compared to dividend returning companies. Being small, they are less complex and easier to understand. A lot of the time you can forget (most) macro trends and just value these companies bottom up. This gives me more piece of mind, so I now find a lot of these companies less risk than some of your standard dividend returning NZX 50 shares. Hence I sold the NZX half of my portfolio coming out of the recession and am now 100% invested in smaller ASX companies. -
15-02-2011, 01:56 PMh2so4Nice one DR, I followed a similar path.:t_up:Quote:
Originally Posted by DarkRed
Expect the unexpected, sharemarket crash, commercial tenacy failure, a drop in personal or business income. Good debt quickly becomes bad debt when you have to service it with other good debt cashflows.
Anyway welcome DR, I am sure you will get all your answers.
Main thing, have fun. :) -
15-02-2011, 04:03 PMSnoopyI think the best way to answer your question Darkred is to go through an example. Let's suppose you invest in a company. Let's call it 'P',Quote:
Originally Posted by DarkRed
which is funded by having 50% shareholders equity and 50% debt. Let's say P is a $100m company by market capitalization. Now lets say
you buy a piece of the action by investing $10,000 in this company. Congratulations, you are now a shareholder!
$10,000 might seem a lot to have invested in just one company, but as far as the company is concerned you are now a holder of
$0.01m/$100m = 0.01% of the company. That is probably enough to earn you an extra biscuit at the AGM, but little more.
'Capital efficiency' is an often-toted topic around board tables. The idea is that if you can multiply your equity by borrowing some bank
funds against it then you can create a bigger pool of money and do more than if you had just used your own cash (much like you are doing but on a bigger scale). As long as whatever project the company P undertakes will pay back more than the cost of interest spent in maintaining the idea, borrowing is a good thing to do.
One line of thinking might say that if you can earn 10% and your cost of borrowing is 5% just borrow as much as you can. Older wiser business heads will know that business goes in cycles. That means your borrowing policy should be robust at the bottom trough of the business cycle, and not just be a match for today's business conditions. Some directors regard a 50% debt 50% equity funding approach as a good funding rule of thumb. In reality the amount of debt a company should hold is 'certainty of cashflow' specific. But let us say the directors of P have been through a complete business cycle plan and 50% equity 50% debt is indeed right for them.
Now back to your $10,000 investment. The company P may talk in millions. But in your case your $10,000 has bought $5,000 of owner
equity and an obligation to pay interest on $5,000 worth of debt before you see a cent of dividend income.
Here is the wildcard that I didn't mention before. You personally bank at the same bank as company P. That $10,000 that you spent on
shares consisted of $5,000 of your own money and $5,000 borrowed from the bank. Through your superb negotiation skills you have
negotiated a 5% interest loan rate, co-incidentally the same as company P is paying. So how much money are you paying in interest
to your bank per year?
Easy you say. 5% of $5,000 is $250. That is the answer! Well not quite.
Through the intermediary of company P's chief financial officer, you are also paying interest on the loan that the company CFO has secured against the share capital first raised at float time but now stacked up against your personal name at the company records office. The CFO has $5,000 of loan stacked up against the money you invested in the company via the sharemarket. So you are paying 5% of $5,000= $250 of interest via the CFO of P as well! That CFO is working behind the scenes on your behalf. So although you never see this payment, it is just as real as the $250 you are paying every year for your own private loan. Just ask the bank that received both payments. As far as the bank is concerned the interest payments they receive from you and from company P are equally good. Cash is cash.
The answer to the interest question then, is this.
You are paying $250 worth of interest directly and $250 indirectly for a total of $500 per year. Note that this is now 10% of the $5,000 worth of equity you originally put up to buy the shares which doesn't seem quite so cheap. That means that while the company can survive the next business downturn, there is no certainty that you will survive, paying twice the amount of interest that they are paying for the same income.
Here is the point I want you to think about when borrowing to buy shares. What you are really doing is saying that the company would be fine if it took on a lot more debt, even though the company directors having had a discussion about this at board level have decided this is not so. Not all company directors get it right. Sometimes judicious leverage on behalf of a shareholder can pay off. But before you make the decision to borrow against a certain share, take the time to consider whether your wisdom really is smarter than the collective wisdom of the board.
SNOOPY -
15-02-2011, 04:59 PMshasta
Dont worry Snoopy i wont be advising Darkred into buying PGW!
All the companies i posted about have no debt (most have reasonable cash to fund drilling campaigns) & most are low EV's under $10m, with tight capital structures & many have larger JV partners funding the drilling -
15-02-2011, 05:32 PMDarkRed
Just got home from work to find this thread full of advice. Cheers
Snoopy your example helps heaps in my understanding, thanks for providing so much detail.
I have another question now. I have been thinking about your comments regarding borrowing to purchase shares. Your explanation was great and I have a better understanding of how my personal debt and the debt of the company I have a shareholding relates to me personally.Quote:
Here is the point I want you to think about when borrowing to buy shares. What you are really doing is saying that the company would be fine if it took on a lot more debt, even though the company directors having had a discussion about this at board level have decided this is not so. Not all company directors get it right. Sometimes judicious leverage on behalf of a shareholder can pay off. But before you make the decision to borrow against a certain share, take the time to consider whether your wisdom really is smarter than the collective wisdom of the board.
My question now is about how the debt is used by the company compared to how the debt is used in my personal situation.
The borrowings that a company takes are usually long term and hence they need to factor the business cycle when they determine the level of borrowings they have. I am assuming that these borrowings are sometimes not very liquid in that fact that if outside factors were to change and they need to reduce their debt level they couldn't easily restructure their debt position.
In the case of me personally investing in a shareholding of a company the shares are relatively liquid and therefore I can change my debt position more easily then that of a business. Because of this I can personally increase my leverage and risk because I have more liquidity in my debt position.
I don't want to get into a position where I am so over leveraged that I become forced to sell due to the burden of my debt... -
15-02-2011, 08:12 PMpercy
DarkRed,
You are getting expert advice.Here is a funny,but horribly true saying for you.
"A banker is a man who lends you an umbrella when the sun is shinning,but asks for it back as soon as it starts raining." -
16-02-2011, 11:10 AMSnoopyHaving the money and technical backing to develop a mining site is dodging the question Shasta. The question was are they cashflow positive today? I suspect the answer is no.Quote:
Originally Posted by shasta
SNOOPY -
16-02-2011, 11:19 AMSnoopyYour point Darkred, that it is relatively easier for you to quit a company stake small enough not to upset sharemarket liquidity, than it is for the underlying company to restructure their debt package with the banks, is credible. The only counterpoint I would make is that just because a company seems relatively liquid today, that does not mean it will be equally liquid if an unexpected problem comes up!Quote:
Originally Posted by DarkRed
SNOOPY -
16-02-2011, 05:34 PMshastaActually Snoopy, all due respect but you seem to be dodging the main point. None of the companies i posted have ANY debt, which was the premise behind your earlier post.Quote:
Originally Posted by Snoopy
Thus Darkred is not multiplying his risk by utliising debt to invest into companies with debt.
If he requires companies with reliable cashflows who pay high yielding dividends (on a sustainable ongoing basis) i have many other options for him to look at -
17-02-2011, 09:42 AMSnoopyOK , I see your point and agree with this.Quote:
Originally Posted by shasta
SNOOPY -
17-02-2011, 04:37 PMSnoopyActual cashflows are required to pay interest bills. Promises of cashflows don't cut it.Quote:
Originally Posted by shasta
SNOOPY -
18-02-2011, 04:54 PMshastaIf he invests in companies without debt, wheres the interest coming from?Quote:
Originally Posted by Snoopy
If you mean obtaining a return to cover the interest on his property loans @ 6%, there are plenty of stable companies who pay better than that! -
18-02-2011, 09:50 PMRRR
Belg - I acknowledge that you are a better user of leverage ( a rarity in share investing). But, there are still a lot of companies in NZ paying dividends higher than the bank interest rates - I dont care whether it is normal or abnormal for NZ. May be the dividend yield is not sustainable for a lot of companies, but still they are higher than the bank interest rates for the time being.
Snoopy - Are you saying that dividend yield higher than bank interest rates is normal? It has been the norm for NZ for some time but I dont think it is normal. It is abnormal - for the right or wrong reasons. May be the asset values have been pushed down too much expecting a below par growth rate. But the yield is good considering the inflation for NZ (low inflation). Market is right of course. In the developing world the growth is spectacular, but the inflation is equally spectacular. -
18-02-2011, 11:15 PMJBmurc
well I trade with borrowed money of course when things are bad my 07/08 year I took good size losses but as I trade within a LAQC company I got full return of my personal income tax(pays to have other than just Share trading income) which at the time was re-invested-- 09/10 I made some very good profits paid a very large Tax bill looks like I will be up for another 50k+ tax bill 10/11 fin year
personal I'm happy to trade with a certain amount of borrowing funds to may overall cap(which at this time is 50/50) this IMHO works as long as you are confident of your Share trading as for investing long term non-taxable It would really come down to how much you are to borrow and how much income you have coming in.
I pay round $190pw my personal income covers it easy -
18-02-2011, 11:53 PMshastaI used to use margin lending for many years, to free up additional capital to trade with, or for a special situation, without having to sell the longer term holds that i had in a separate account.Quote:
Originally Posted by JBmurc
I personally regularly funded the margin lending account so i was hardly ever fully leveraged, & when things turn sour in the market/sector, i sold all trades/stocks on margin, & repaid the loan & left the funds with 0% margin used in a cash mgmt a/c getting good interest.
The loan fees were only $250 a year, though i never bothered to open a $AUD a/c so i got slaughtered on the NZD/AUD exchange on ASX transactions, but most of the funds i put into the ASX back at the start of 2007 was at 90c+ :)
Margin Lending isn't for everyone, but for those who are disciplined, & can regularly fund the a/c, & have a tolerance for risk, its another investing/trading tool -
19-02-2011, 12:06 AMJBmurcYeah I just used my debt free section(Now has house with extra debt) as collateral with ASB so getting charged 6.3% for the loaned funds goal is to pay down the 400k debt we took on for the new house with tax paid profits from the share trading company and in time increase the loan for the sharetrading as the bank and market allows be good to keep my trading debt no higher than 60% of total portfolio value ,got a ASB AUD account with costs a spot over interbank rates on AUD/NZD exchanges (should have got years ago saves if your moving fundes to and from AUS)which of course you do now and a again to pay for you loan interestQuote:
Originally Posted by shasta
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19-02-2011, 03:42 PMSnoopyYes, but you do have to check out if that 6% plus yield is really sustainable with a little stress testing.Quote:
Originally Posted by shasta
Good advice for you and others in your situation Shasta, but note the embolded bit of your quote!Quote:
Originally Posted by shasta
You make the caveat that if you can regularly put a little money into your account, then you won't have any trouble. I agree, but this is not the situation that Darkred may find himself in when he goes overseas. Your suggestion of borrowing to put money into development projects with no cashflow, when Darkred has told you that he may not be able to fund sudden calls on capital when he is overseas is IMO totally unsuitable advice for his situation.
SNOOPY -
19-02-2011, 03:46 PMSnoopyTaking the view of the last 110 years as a whole, yes.Quote:
Snoopy - Are you saying that dividend yield higher than bank interest rates is normal?
Growth expectations over the last 30 yaers or so have been much higher than historical growth expectations. And that has been fuelled by higher infaltion over that period as you suggest. I woudl say the last couple of years has been a return to normal.Quote:
It has been the norm for NZ for some time but I dont think it is normal. It is abnormal - for the right or wrong reasons. May be the asset values have been pushed down too much expecting a below par growth rate
SNOOPY -
19-02-2011, 04:11 PMRRR
Good article in NZH
http://www.nzherald.co.nz/business/n...707319&ref=rss -
23-02-2011, 10:27 PMDarkRed
Thanks for all the good information everyone. I have been reading it the last week but not been able to reply.
Discovered last week how well the medical profession is payed! anyway...
UPDATE
So I have come to a bit of a decision. I am planing on investing an additional 10k shortly. That will leave me with around 10k of my 30k flexi loan to cover unexpected costs e.g. tenants moving out, not paying rent etc.
The 10k I have available I am looking at using 5k to increase my holding in my existing portfolio with it most likely going to RYM at this stage.
The extra 5-6k I am looking at heading to the ASX with some higher risk investments there. Thinking three splits of 2k each (could that be to small?)
Shasta - Done a bit more research into some of the companies you have said are worth looking into. Currently researching AYN and HLX, both look interesting!
I still have Pike River memories close to home tho. I know its different with open cast and not mining coal...