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Rule #1 - Do not lose money! Rule #2 - Never forget rule number 1! ( by: Warren Buffet )For comments or questions please email: : admin@equityresearch.com |
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How Leverage Works Against YouLeverage seems to be a good thing. You can ride the trend by buying up as much stuff as possible and you will make more money. Right? No, it doesn't work that way.Leverage, using margin, and spreading yourself thin is a bad investment philosophy. What typically happens to the leveraged investor is that they have a horrible time on exit strategy. Once the market declines, they are then subject to margin calls and forced to sell good investments to pay for the bad. This limits the amount of investable cash to invest. Having money set aside for market downturns is an important investment philosophy. When bargains abound, do you want to be the guy with money to snatch things up or be heavily in debt forced to sell some of your best securities. Many of the top investors sit on the sidelines during high valuations and move back into the market when it is evident that the deals are really good. During the last economic downturn, the market took a big hit. The Dow was down into the six thousands. Why? Many of the top investors were sitting on the sidelines waiting for the bottom before moving in. Once the perceived bottom was hit, money quickly poured back into the markets. In your personal life, you should know that leverage can be harmful. Many people are losing their homes because they had no margin of safety. You could lose your job or have other tragedies happen to you. A highly leveraged person will have nowhere to go and feel a deep burden of debt upon their heads. |
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