I have different opinion on Margin Financing. There is no right or wrong on Margin Financing, it is your strategy counts.
I used Margin Financing very heavily when market is bullish. I avoid all Margin Financing to zero when market is bearish. I had used Margin Financing for > 20 years. In actual fact, I am doing very well with this Margin Financing.
I am a very discipline trader and investor, my strategy is TA comes first, FA comes second. When my TA is bearish, I will cut my position until I am very comfortable. I will avoid Margin Financing or minimise when market is bearish.
It is just like a company, you can take loan when your company is doing very well. Your ROI is > bank interest, bank borrowing is ok. Of course, you cannot over gear.
It is a different opinion, I will not say Margin Financing is totally bad or wrong.
walau2uDear KC,from ur portfolio, we can c that the total loss near 20% within short period of time, can we say that your portfolio is less defensive and lack of capital preservation? how do u address this? Just my 2 cents, thanks.
kcchongnzPosted by walau2u > Dec 16, 2014 10:07 PM | Report Abuse Dear KC,from ur portfolio, we can c that the total loss near 20% within short period of time, can we say that your portfolio is less defensive and lack of capital preservation? how do u address this? Just my 2 cents, thanks.
Yeah walua2u, the portfolio I put up about a year ago had heavy loss during the recent sell down. Compared to three months ago, the average loss is close to 30% (not 20%), from a gain of 17.5% to a loss of 11.5%. Compared to the loss of KLSE of 9.2%, the portfolio now suffered a negative alpha of 2.3% (11.5%-9.2%).
The heavy losses are in the two company warrants, MRCB and BIMB. The rest are generally good companies with either good earnings or good balance sheet. So I am not sure why you said is less defensive and lack of capital preservation, and how would you achieve more defensive and better capital preservation, unless you don't invest.
How I wish that I had a crystal ball three months ago that I knew the plunge was coming. Anyone can lend me one?
In a bull market good lower capitalized stock will do much better than the broad index and vice verse.
But at least I am relieved that I am not in margin finance, and having a maximum margin finance three months ago when the market was bullish. Otherwise the leveraged portfolio would have lost maybe 65% since three months ago. I don't know what would the hassle like with the margin finance. But of course i would be perfectly alright if I had sold all of them just before the plunge. Again no crystal ball.
But at least I did not own another favorite portfolio of mine below which has lost a total of 50% now, compared to my 11.5%.