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Investing/Strategies / Mechanical Investing
|Subject: Re: maybe done||Date: 5/16/2013 7:01 PM|
|Author: mungofitch||Number: 243117 of 255673|
My last question is would you use interactive brokers low margin to buy WFC preferred L
Probably not, at least not more than at the 10-20% level tops, and even
then if I were using leverage I'd use one of the methods I mentioned.
Never reach for yield. If rates are low, live with it.
WFC-PL is trading at $1346 and it traded at around $350 (briefly) during the crunch.
If you know how to do the math on leverage limits, plug that into the equation.
The drop itself is a problem at all if you can wait it out, but if you have broker margin you can't do that.
Well, maybe you can, but it's not your call, it's the broker's call.
"Leverage is the only way smart guys go broke"--Warren Buffett
Having been burned on this front (hit with a margin cut and call 2008-11-20), trust me on this one, he's right.
Leverage in investing is a good thing if and only if you meet five criteria:
- the underlying asset is sufficiently safe and sufficiently reliably not falling in value
- the price/value ratio is attractive enough at the time of entering the position to offer a good margin of safety
- the cost of the leverage is very low and will remain so
- the loan can't be called
- the loan is long term or guaranteed to be renewable in some way.
(from my post http://boards.fool.com/buying-calls-has-a-risk-i-am-not-sure... )
Yeah, I know it's tacky to quote yourself, but hey, it's late here.
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