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Talking stocks, trading, and investing in general

Discussion in 'Business, Careers & Education' started by mikeman, Feb 2, 2011.

  1. SkinnyGoomba

    SkinnyGoomba Senior member

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    Might be good for a couple days of red.
     
  2. idfnl

    idfnl Senior member

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    My life experience says you don't introduce any debt or make any changes to finances in the middle of a refi or home purchase.
     
  3. SkinnyGoomba

    SkinnyGoomba Senior member

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    I understand margin, rather than fear it, but don't feel the need to use it.
     
  4. idfnl

    idfnl Senior member

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    I fear margin because I lost many, many thousands on Oct 27, 1997. I worked at a shoe store making less than $4 an hour, saved my money, opened a brokerage account at Shearson Lehman. Deposited to it. All the investments and gains I'd made trading since age 16 in 1988 were lost. Even back then I understood compound returns, I know that money, had I protected it like I recommend here, would be very significant today. Margin is a losers game.
     
    Last edited: Jan 23, 2014
  5. lawyerdad

    lawyerdad Senior member

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    That's a meaningless statement. My life experience say you shouldn't generalize your own mistakes into universal rules purportedly applicable to everyone, particularly when you're talking about different circumstances and different types of choices. I obviously don't know what life experience you're talking about, but I'm pretty sure you didn't suffer financial disaster because you used available margin as a three-day bridge loan while you were moving otherwise uncommitted funds from one account to another.
    If by not making "changes to finances" you're saying that one shouldn't invest in the equities markets liquid funds separate from those set aside for the mortgage transaction, I'm inclined to disagree -- but that's not the point under discussion anyway.

    What we're talking is the narrow question of whether there's significant risk involved in using margin as a short term vehicle as described above. Functionally, it's the same thing as making a retail purchase with a credit card (knowing you have the necessary funds sitting in your checking account) because you didn't bring cash or a checkbook to the store with you, and then immediately transferring the purchase amount from your checking account to your credit card count. It's a very safe, responsible use of short-term credit.

    Again, whether or not investing in the stock market today would have been a wise move for jbarwick or anyone else is a perfectly debatable question. And it's perfectly prudent for those of you who don't fully understand how margin loans work not to sign up for something you don't fully understand. But from an informed risk/benefit perspective, it would be completely senseless to pass up an otherwise attractive investment opportunity, for which one has available uncommitted funds, in an irrational attempt to avoid perceived risks that are not even relevant to the transaction being considered.
     
    2 people like this.
  6. lawyerdad

    lawyerdad Senior member

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    If that's the basis for your statements, it would be equally logical to say that "investing in the equities markets is a loser's game". Presumably you lost thousands because you gambled by leveraging your risks in the hopes of making greater gains. When you gamble with borrowed money and don't have other liquid assets available to repay the loans, that's a risk you take. It has nothing to do with the use of margin generally. It has to do with how you used margin. If you take a home equity loan or a cash-out refinance to go to Vegas or speculate in the markets, you risk disaster as well. But that doesn't mean that borrowing against one's home equity can never be a responsible choice.
     
    2 people like this.
  7. GreenFrog

    GreenFrog Senior member

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    Lawyerbrah to the rescue with reason and rationality!

    But in all seriousness guys, I've lost money on apple stock. It's a terrible investment. Don't touch. Sell shares now!
     
    Last edited: Jan 23, 2014
  8. Cantabrigian

    Cantabrigian Senior member

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    You're investing in the management company, not an individual fund. The revenue stream that the mgmt co gets from management and performance fees from a lot of different funds in different stages of their lifecycles is totally different from the returns in an individual fund.
     
  9. idfnl

    idfnl Senior member

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    Your comment about a credit card is not correct. By going on margin, you're opening a new card, to use your analogy.

    In reality, both hold true. You shouldn't make big card purchases either because you have to explain it if asked, and it messes with your DTI ratio.

    I'm making a general statement as advice to others, nobody need listen. I've been thru a few home purchases and a bunch of refinances. They make you present everything, and make you explain anything you do. For example, I was awarded a credit line increase by a card company (unsolicited), and I was required to submit documentation to show it was automated and that I didn't request it. Another example is how I transferred money once between 2 separate 401k accounts, I had to submit all kinds of bullshit to prove the funds originated from another 401k and that money was in the account x months before the transfer.

    I'm not questioning whether its a prudent investment choice. I'm only commenting on how mortgage lenders put you thru the ringer when your parameters change so be aware.
     
    Last edited: Jan 23, 2014
  10. djh

    djh Senior member

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    While I think margin can be helpful at certain times, idfnl is totally right about mortgage lenders. They're a pain in the ass and I wouldn't move money around or take on any new debt while in the process of buying a place.
     
  11. lawyerdad

    lawyerdad Senior member

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    Dude, this is why you get so much shit in so many threads. I know your advice is well-meant, but it doesn't serve anybody to perpetuate bad "information". You make patently incorrect statements, then when you get called out you become intellectually dishonest and try to change the subject rather than admitting you were mistaken. Your previous about how utilizing margin is a "loser's game" and runs the risk of triggering a margin call, not about mortgage lenders potentially getting spooked about tiny ripples in your DTI ratio.

    And not that the analogy matters, but "going on margin" is not like opening a new credit card. If you've been approved for margin trading, it's like utilizing the open credit line on a card you already have. It's just a question of how you utilize an existing credit facility.

    So: yes, if you max out your margin credit buying dot-com stocks on the eve of the crash, you're going to get killed. If you simply use available margin credit as an advance on funds you've already transferred to your brokerage account but which haven't yet been credited, there's nothing that makes that a "loser's game".
     
    Last edited: Jan 23, 2014
  12. idfnl

    idfnl Senior member

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    I disagree. The difference between investing in equities being a losers game and margin is that its your own money, margin is someone else's money and when you lose it, you lose double against your own principal. Margin calls are devastating. If you have funds to back it up, why would you pay interest to use margin to begin with? Seems illogical because have to make up with gains just to get back to 0, but the losses start right away.

    Margin strictly as a short-term bridge loan is understandable, I just made the point that banks may frown on it during a mortgage process.

    You're correct, any form of borrowing to trade is a pretty stupid endeavor, bound to end badly. And no, it doesn't mean borrowing against equity is a bad idea in general, but to play the stock market? Ill advised.

    I don't really know what point you're trying to make. Borrowing to gamble is a bad idea. I'm not sure you're disagreeing, or otherwise trying to dissect a simple point into finding something wrong with it like talking about home equity loans. I'm narrowly focused on my own experiences and my advice. I'm not exactly hearing you say it's bad advice.
     
  13. lawyerdad

    lawyerdad Senior member

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    No, I don't disagree with that.
     
  14. idfnl

    idfnl Senior member

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    I said 2 separate and distinct things:

    1. Fucking with your finances during a mortgage is not the best move. It messes with your ratios, and could cause you to explain a bunch of stuff. And yes, the remote possibility of a margin call, which is small, but my point was more about scrutiny.

    2. Margin in general is a loses game. Not using margin for 3 days as a bridge, but in general as explained above in a separate sub-topic related to SG's comment.

    Please point out any patently incorrect statements I've made. These look like opinions to me.
     
  15. otc

    otc Senior member

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    I would agree with the point about not suddenly using margin for the first time while trying to buy a home.

    Lenders get weirded out by all sorts of little things... Just wait for the funds to clear. It's not like you are buying something you think will pop twenty percent tomorrow.
     
  16. amerikajinda

    amerikajinda Senior member

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    Saw this on my Twitter feed and lol'd:

    "Newbies: the direction stocks are moving is called 'down'"
     
  17. SkinnyGoomba

    SkinnyGoomba Senior member

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    Idfnl, I agree with your sentiment in regard to margin, I do not use it and I'm very strict in my avoiding it. I've seen a couple good investors who dabbled in margin in good stock environments get turned completely upside down once the market changed. Both had very rational approaches and both greatly miscalculated how much a market can change and how quickly. I've avoided it and doing so has helped me survive many downturns in the market.

    That being said, in a practical sense I avoid it because my goal is to collect interest by way of dividends, which is pointless if I'm paying interest.
     
  18. idfnl

    idfnl Senior member

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    :fu: day 2 of this shit.
     
  19. GreenFrog

    GreenFrog Senior member

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    fucking red everywhere.

    i actually managed to end the day slightly green yesterday, thanks to apple, but i dont think that will happen today.

    fucking BAC -- might have to average down.
     
  20. jbarwick

    jbarwick Senior member

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    Good thing I didn't buy yesterday.....unless I bought some VIX expecting this...
     

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