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  • #91
    Originally posted by CordMcNally View Post

    Anybody here can take one of those options off the list pretty fast.
    Part of one. A troll or a fool can still have narcissistic personality disorder.

    Comment


    • #92
      Originally posted by uksho View Post
      I follow this forum and all my money is in index funds. Considering my friends are making a ton in market right now , sometimes I think if that is the correct policy( I understand I will not be thinking the same, if market was crashing. I am not sure what will cause the market to crash, if it did not happen during COVID year , from Jan to Dec). To be clear, I am not talking about putting money in one stock

      Ready for your comments!
      Nope, no regrets. Boring index funds. slow and steady wins the race.

      Comment


      • #93
        Originally posted by Zaphod View Post
        Its awesome if you pick winners, which is mostly due to luck and is not a repeatable process.

        People get all excited about picking stocks, but are mortified by any discussion of leverage. Really, you can crush most stock pickers LONG TERM records with some leverage. It doesnt have to be insane. 1.25, 1.5 on a safe large index with overall lower volatility is set and forget with better long term performance. Yes, it will be more volatile. Same is true for individual stocks except they can go away forever, indexes wont.

        KISS
        Levering indexes makes sense to me also.
        Although there are serious risks to leverage.
        I overlay it with a valuation bias.
        I set my stock AA at 90-150% over the market cycle.
        Prior to Covid I was 90%. Currently I am 150%.
        I would hope to be back to 90% in 5-6 years.
        I am entirely international currently and thinking how I lay off the exchange rate risk at some stage.
        I use noncallable debt.
        I am too old school to use levered ETF’s.
        I think there is risk of a churning market underperformance. But they outperform in strongly uptrending markets. I would have been better off using levered ETF’s this year, but there is no way I would have been comfortable holding my current position in levered ETF’s.

        The cheapest option I could see was a margin loan and a bank line of credit to bail you out. However I would be worried the bank facility fails when needed, so I just used noncallable debt which is about 1% higher than the other option.

        On a few non-US indexes, the carry is positive to the tune of 1-2% pa with my current funding arrangement.

        I’ve been really pondering whether to pay off debt, keep buying international or start buying US indexes. Even though it is probably not mathematically optimal, I think I will start debt payoff. That is where I feel comfortable in terms of risk tolerance.

        How do you keep a 150% or even 120% over the cycle behaviourally? I would have browned my pants in March 2020 and 2009.

        Comment


        • #94
          Originally posted by Dont_know_mind View Post

          Levering indexes makes sense to me also.
          Although there are serious risks to leverage.
          I overlay it with a valuation bias.
          I set my stock AA at 90-150% over the market cycle.
          Prior to Covid I was 90%. Currently I am 150%.
          I would hope to be back to 90% in 5-6 years.
          I am entirely international currently and thinking how I lay off the exchange rate risk at some stage.
          I use noncallable debt.
          I am too old school to use levered ETF’s.
          I think there is risk of a churning market underperformance. But they outperform in strongly uptrending markets. I would have been better off using levered ETF’s this year, but there is no way I would have been comfortable holding my current position in levered ETF’s.

          The cheapest option I could see was a margin loan and a bank line of credit to bail you out. However I would be worried the bank facility fails when needed, so I just used noncallable debt which is about 1% higher than the other option.

          On a few non-US indexes, the carry is positive to the tune of 1-2% pa with my current funding arrangement.

          I’ve been really pondering whether to pay off debt, keep buying international or start buying US indexes. Even though it is probably not mathematically optimal, I think I will start debt payoff. That is where I feel comfortable in terms of risk tolerance.

          How do you keep a 150% or even 120% over the cycle behaviourally? I would have browned my pants in March 2020 and 2009.
          Think those are the more difficult questions and you have to have a plan/rules. Can always use a variant of shannons demon and take winnings from your higher risk plays and sweep them into regular index funds. In taxable its always made sense (though havent implemented yet) to me to tlh using your regular funds into levered etfs after corrections, etc...Ride them up for either a set period of time, index level or some perceived danger and either covered calls, collar or simple method is to switch it all back to regular index fund, rinse/repeat.

          Comment


          • #95
            I've so far made a 14x profit on Tesla. I have no plans to make further individual stock purchases. I only made that gamble,and investing in TSLA is a gamble) because of a very unique set of events. I don't expect to ever have that confidence in a single stock ever again.

            Unless it's your hobby and you enjoy it more than other hobbies and family, or it's your job, then index funds are all you need or want.

            It's not that you can't make money in stocks, it's that you probably won't beat the index and you'll spend resources you cannot get more of in the effort (time and mental capacity).

            ACTIVE real estate investing...That's been a bit different, but only because of my stay at home spouse who wanted to return to work, high tax rate, and significant available cash.
            Last edited by Molar Mechanic; 12-12-2020, 01:29 PM.

            Comment


            • #96
              Wideopenspaces. I would decide on a percentage of your portfolio that would allow you to sleep at night with the Amazon stock. I could handle 10%. Apple is about 10% of my equity holding. I get alerts from Vanguards portfolio tracking tool whenever I run it. The rest of my equity is indexed. I have considered selling the apple many times but it seems it would generate taxes with no upside. Individual stocks are very tax efficient.

              Comment


              • #97
                Going back to the buying stocks on a margin question, so do you use this when you dont have enough money to invest or just as another way of investing. Currently I have about 6 mil in stocks , bonds and mutual funds. So why would I just not take out some of my money in a bond or money market account to buy more stock. I really dont understand the concept of borrowing money to buy a stock. It seems at least on paper that it might work in an up market, but having a prolonged down market could be large and unnecessary risk.

                Comment


                • #98
                  Originally posted by Random1 View Post
                  Going back to the buying stocks on a margin question, so do you use this when you dont have enough money to invest or just as another way of investing. Currently I have about 6 mil in stocks , bonds and mutual funds. So why would I just not take out some of my money in a bond or money market account to buy more stock. I really dont understand the concept of borrowing money to buy a stock. It seems at least on paper that it might work in an up market, but having a prolonged down market could be large and unnecessary risk.
                  Buying an index on margin is making a gamble that the index will grow more, after tax, than the cost of funds after tax. It might be a reasonable gamble, but it is a gamble.

                  Comment


                  • #99
                    Originally posted by Random1 View Post
                    Going back to the buying stocks on a margin question, so do you use this when you dont have enough money to invest or just as another way of investing. Currently I have about 6 mil in stocks , bonds and mutual funds. So why would I just not take out some of my money in a bond or money market account to buy more stock. I really dont understand the concept of borrowing money to buy a stock. It seems at least on paper that it might work in an up market, but having a prolonged down market could be large and unnecessary risk.
                    One could move to a more equity heavy AA, very reasonable or use margin to keep a higher equity amount while maintaining their fixed income/safety status at a certain level.

                    It is simply a way to expose yourself to a larger part of the market than you can buy with your current capital. The idea for normal conservative investors is to smooth the relationship between human capital and capital. Whats the point of being able to dump 1 million into the stock market at 65, when it will have relatively little time to compound? Do it earlier and let your capital grow into your leverage until its gone, then it compounds ongoing.

                    Everyone is pretending you have to go to the bank and take out a loan when you have several ways to do it, the easiest of which it to buy a 2 or 3x etf, no loan involved. Most have fees less than 0.95%, which is better than many get with their work funds and better than advisor fees, the past, etc..etc..

                    For younger people its just a smart way to better matchup ones investing timeline and lack of capital initially.

                    Lifecycle investing is an excellent paper that discusses this concept. A consumption smoothing but for investment. There is also a book, but its literally the paper retold 15 different times.

                    There is an absolutely massive difference in callable debt and non callable debt of course and when people use actual margin on their accounts and use way too much that they get into trouble.

                    VTI or SPY is a leverage factor of 1. There is nothing magic about this, it doesnt become playing with fire at 1.03, etc...but there is a point of diminishing returns.

                    The US market long term has been optimized with a leverage factor of 1.8-2x. That is of course mathematical and you'd need rules or the ability to hold through horrific feeling draw downs depending on actual leverage levels, but thats the truth.

                    Originally posted by Molar Mechanic View Post

                    Buying an index on margin is making a gamble that the index will grow more, after tax, than the cost of funds after tax. It might be a reasonable gamble, but it is a gamble.
                    Gamble is a strong way to phrase it and depends on what you're really doing. If you think the index is going to be up in 20 years its no more a gamble to put on low, reasonable leverage than just buying it outright.

                    Start talking about short term options with deltas less than 0.99 and now you're doing some gambling.

                    Comment


                    • Originally posted by Random1 View Post
                      Going back to the buying stocks on a margin question, so do you use this when you dont have enough money to invest or just as another way of investing. Currently I have about 6 mil in stocks , bonds and mutual funds. So why would I just not take out some of my money in a bond or money market account to buy more stock. I really dont understand the concept of borrowing money to buy a stock. It seems at least on paper that it might work in an up market, but having a prolonged down market could be large and unnecessary risk.
                      Since you have a large portfolio, you would be eligible from your broker to use margin at low rates (1-2% most likely). The purpose of using leverage to buy more equities is to amplify your returns (and amplify your losses). That's basically it; there is no other reason to use leverage. Especially if you are relatively young, compound interest, time value of money, etc all factor in as well. It's just a matter of risk tolerance at that point (how much are you willing to wager).

                      For someone like yourself with a healthy sized portfolio, you wouldn't even need to go crazy to get higher returns: even using something tame like 10% leverage would add up over time, due to the size of your current portfolio.

                      And like others mentioned before, there are a few ways you can use leverage: 2x/3x ETFs, margin from your brokerage, low interest line of credit or loan from your local bank, LEAPs (long-term call options with delta > 0.9), or futures.

                      Comment


                      • Originally posted by Zaphod View Post

                        Think those are the more difficult questions and you have to have a plan/rules. Can always use a variant of shannons demon and take winnings from your higher risk plays and sweep them into regular index funds. In taxable its always made sense (though havent implemented yet) to me to tlh using your regular funds into levered etfs after corrections, etc...Ride them up for either a set period of time, index level or some perceived danger and either covered calls, collar or simple method is to switch it all back to regular index fund, rinse/repeat.
                        The problem I had conceptually with rebalancing between a levered ETF and unlevered ETF in a profit situation is the CGT. But then you can’t take advantage of pullbacks as much. But I have still been buying pullbacks because my leverage capacity is still under-utilised. I think a lot of this is a psychological issue I have that I have not used levered ETF’s at all in the past.

                        I compared my return this year.
                        Currently I am up 30% on the levered strategy that I employed but would be 40-50% if I had used a levered ETF/unlevered ETF rebalancing combo.

                        I had thought to leave the levered ETF as the get out of jail card and not to be used except in the case of a 40%+ drop. In that case I was going to TLH half the ETF position which would be underwater and buy levered ETF.

                        But actually there are many other ways to do this and probably many better than what I selected.

                        What the levered ETF does is keep you at a constant leverage level and maintain that. My tendency has been to have too much leverage at the start and succumb to debt payback over time.

                        Actually I looked at it and my leverage is $1 equity for every $2.7 position. Or $1 equity for every $1.7 loan. Which is slightly more than I thought but I feel comfortable with this currently.

                        Probably the only way I can avoid debt payoff behaviourally is to buy some levered ETF’s and just leave it. But then this wouldn’t be the portfolio I want in retirement so optimal in terms of leverage but not so for CGT.

                        Comment


                        • Originally posted by Random1 View Post
                          Going back to the buying stocks on a margin question, so do you use this when you dont have enough money to invest or just as another way of investing. Currently I have about 6 mil in stocks , bonds and mutual funds. So why would I just not take out some of my money in a bond or money market account to buy more stock. I really dont understand the concept of borrowing money to buy a stock. It seems at least on paper that it might work in an up market, but having a prolonged down market could be large and unnecessary risk.
                          If you wanted to go along the risk curve you could go 100% stocks. You could also employ a risk parity type strategy and lever your whole portfolio. It would seem to me being 100% stocks would be less risky than levering a 60:40 portfolio but others have argued the opposite. I think it depends on how you assess risk.

                          Further along, if you levered your 6M portfolio at 50% debt:equity, your portfolio would be 12M with 6M debt. If it was 100% equities and equities went down 50% you would have no equity left. If it appreciated 100% your net wealth would be 18M compared to the 12M if you remained unlevered (assuming dividends/income cover interest and other expenses).

                          The leverage increases your returns and potential loss.

                          Comment


                          • Originally posted by Zaphod View Post

                            One could move to a more equity heavy AA, very reasonable or use margin to keep a higher equity amount while maintaining their fixed income/safety status at a certain level.

                            It is simply a way to expose yourself to a larger part of the market than you can buy with your current capital. The idea for normal conservative investors is to smooth the relationship between human capital and capital. Whats the point of being able to dump 1 million into the stock market at 65, when it will have relatively little time to compound? Do it earlier and let your capital grow into your leverage until its gone, then it compounds ongoing.

                            Everyone is pretending you have to go to the bank and take out a loan when you have several ways to do it, the easiest of which it to buy a 2 or 3x etf, no loan involved. Most have fees less than 0.95%, which is better than many get with their work funds and better than advisor fees, the past, etc..etc..

                            For younger people its just a smart way to better matchup ones investing timeline and lack of capital initially.

                            Lifecycle investing is an excellent paper that discusses this concept. A consumption smoothing but for investment. There is also a book, but its literally the paper retold 15 different times.

                            There is an absolutely massive difference in callable debt and non callable debt of course and when people use actual margin on their accounts and use way too much that they get into trouble.

                            VTI or SPY is a leverage factor of 1. There is nothing magic about this, it doesnt become playing with fire at 1.03, etc...but there is a point of diminishing returns.

                            The US market long term has been optimized with a leverage factor of 1.8-2x. That is of course mathematical and you'd need rules or the ability to hold through horrific feeling draw downs depending on actual leverage levels, but thats the truth.



                            Gamble is a strong way to phrase it and depends on what you're really doing. If you think the index is going to be up in 20 years its no more a gamble to put on low, reasonable leverage than just buying it outright.

                            Start talking about short term options with deltas less than 0.99 and now you're doing some gambling.
                            The lifecycle idea makes sense to me.
                            I bought forward 6 years in savings/investments this year.
                            It also smoothes out my price risk of buying index funds when I expect to sell a property in the next 2-4 years. If I do sell a property, I may end up discharging the debt and have a significant cash position at that point if I didn’t get debt now.

                            I can psychologically get my head around taking on debt in a lifecycle or cashflow manner. What would be hard behaviourally is keeping a constant leverage ratio. Having 1.5M in debt when your income from your usual job is 500k and 50% leverage on a 3M portfolio is very different to having a 20M portfolio and being able to maintain 10M in debt. Some people seem to be able to do this though in stocks and real estate. I have not been able to stomach having more than 3M in debt. The risk of going back to zero seems not worth it to me.

                            Leveraged ETF’s might have a role in maintaining leverage for me above my psychological limit for conventional debt (currently about 2M at this point in my life).

                            Sometimes I wonder whether I should just say I have enough and call it a day with bearing risk to try to optimise return. There’s always the temptation of debt payoff and a supposedly less stressful life. The only problem is the FOMO might get me if I didn’t have a little leverage.

                            Comment


                            • This Leveraging discussion. Seems unnecessary for doctors and other high income professionals.

                              We leverage our human capital with loans (mortgage, student loans) early in our life/career and I just don't think we need extra risk. Attempting to become a productive doctor with premed, then getting into medschool, and risking surviving the training and work life is risk enough in my opinion.

                              The opportunity costs are huge. The risk of failure or unhappiness is robust.

                              Additional risk necessary for financial gain? I don't think this is wise.

                              My wife and I are both docs. Prior to age 55 we currently have a net worth over 6M (between 6-9M)

                              Did we invest in single stocks or index funds with tons of borrowed money?


                              Nope. We paid off our debt as fast as possible, after maxing out our IRAs

                              We were debt free within 5-6 years of finishing training.


                              We paid off a mortgage on a condo in 3 years, rented for a while then paid off our current home in 1 year so now no mortgage, no debt of any kind.

                              How did we get the big net worth ? (or big in my opinion?)

                              We did not spend and we saved.

                              We made most of our net worth with boring old work income + index fund investing.

                              Our income was great (two doc family) but a big part of it was saving more than 50% of take home.

                              All our investments have been in boring old index funds. And they have gone up a lot in the last 10 years.

                              Now the question is: How much money do we need?

                              Seems like the most important thing for me at this point is not to increase returns but rather to decrease risk.

                              Our returns for the last 10 years have been a little more than 11%.

                              I imagine the future will have lower returns for us but lower risk. (we increased our bond allocation over the last few years)

                              Lower risk and lower return = smoother ride, and I am happy with that.

                              My health is more important than making more $. My family, my credibility, my sense of well-being, etc. All more important than being ridiculously rich.

                              What the heck would I do with 5x? Charity sure, but is it worth the personal risk?

                              Larry Swedroe in his books tells a story of a dude who had 13M in the late 90s. All his money was in dot com ( .com) stocks. In the late 90s this dude's wife told him to decrease risk. She told him to buy some bonds and decrease his stock allocation. So the dude talks to his AUM fee advisor.

                              His "advisor" told him stay invested in the stocks. You are killing it! You are doing great!

                              He lost 11M and went from 13M to 2M.

                              after having just 2M, he met Larry.

                              Larry asked the guy: "did you want to double the 13M? I mean would you have felt different with 26M vs 13M"

                              The poor guy and his wife said they would not have felt any different with 13M vs 26M but now that they had lost down to 2M they felt awful.

                              The lesson for me is simple: DON'T LOSE.

                              I am gradually increasing my bond allocation. I have a paid for house (paid off my house instead of buying more stocks) and I owe no one.

                              Don't lose.
                              Last edited by Tangler; 12-13-2020, 06:18 AM.

                              Comment


                              • I was awarded $1000 of IBKR a couple of months ago as part of their welcome program. All I had to do was transfer in $100K of assets to Interactive Brokers. I’m required to hold it for a year. It’s a good reason to hold an individual stock even though I never would otherwise. Fortunately the price has shot up about 15% since I was awarded it. We’ll see what happens between now and the 12 month mark.

                                If anyone is interested in participating in this bonus I can try to send a referral code. I’m not crazy about holding IBKR stock, but hey, it’s a grand of free money.

                                The only other time I owned an individual stock is when I was in the process of buying an etf but typed the ticker symbol in too quickly. Sold it three days later after it settled.

                                Comment

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