Originally Posted by
Aaron
Only time will tell if s/he is wise or foolish.
I have a margin facility with ASB Securities currently unused as I await the next big crash as well as a revolving mortgage which is currently paid off but I would draw down on this first as mortgage interest rates are better than margin loan rates.
I would be worried about borrowing to invest in only one company but people borrow to buy businesses all the time sometimes it is the only way to get ahead. It has been pointed out many times how leverage can boost your profits as well as wipe you out if it goes bad.
For example take Spark, say you purchased shares in this company in January at $2.10 and sold in October for say $3. If you had $50,000cash to invest you could have made $21,428 ((.9/2.1)*50,000) capital gain as well as $5,434 in dividends ($50,000/2.10=23,800shares times Mar & Sep Div .22833)
Profit $26,862
Had you utilised your margin loan to its fullest you could have bought $166,667 of Spark ($50,000/.7) $50,000 equity $116,667 debt. That is a capital gain of $71,429 and dividends of $18,107 (79,300shares * .22833) Interest on margin loan 7.2%per annum Jan to Oct $7,000.
Profit $82,536
(better check my figures they are only rough but are hopefully close)
Now add another $200,000 more shares from your revolving mortgage and I have almost convinced myself to go all in. It is just that I have held Telecom shares since they were over $6 and with dividends I may just be breaking even. I haven’t tried working it out. If I had used leverage I would have been wiped out.
If you have done some research it starts to change from gambling/speculating to high risk investing.
I don’t trust my own research or that of professional analysts no one can see the future but without some risks you aren’t going to get ahead significantly. The more you know and understand the less risk you are taking. Anyway it is almost mandatory to invest with debt in this day and age as the world central banks are suppressing interest rates while trying to boost inflation so that those pesky debts disappear over time. We wouldn’t want the savers to get ahead in life.