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Author: mikcra Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5655  
Subject: time to leverage?? Date: 11/17/2008 1:48 PM
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I'm considering the idea of leveraging [prudently] into high-yield div payers in this discounted market environment.

I was very lucky to have avoided much of the damage this year, I moved to 90% cash in March [switching jobs, felt it time to move to cash and focus my attention on the new job - pure luck, I do not believe in fruitless atttempts at market timing].

Besides moving 60-80% of my cash back into quality dividend-payers, I'm wondering if I should 'be greedy when others are fearful' and apply leverage.

With HELOC interest rates at 3-4%, I could use this borrowed capital to pick up a diversified basket of high-yield stocks. It's not too hard to find a handful of stable blue-chips that are growing their dividend payout. By picking stocks paying >4%, I would be coming out ahead on the dividends alone. By screening this same list of stock candidates to find companies trading at a steep discount to fair value, I stand to benefit when the market turns around.

I can get paid dividends while patiently waiting for the market rebound, and break even or even make a few $$$.
When the market rebounds, I can maximize my return of invested capital.

I just feel that right now is actually a less risky environment for stock investing, most are trading at a discount, and the long-term odds favor an overall market rise instead of a decline.

I would keep a large cash cushion to protect in the event of a precipitous drop in one or more positions, where a margin call would be forthcoming. Being diversified into several positions, I can't see how ALL the positions could significantly decline from here.

Obviously, I realize that this strategy involves a bet on the overall direction of the market in the medium term, and the bet is being placed with a portion of my home's equity. So yes, there is some risk involved. However, no risk = no reward.

Feedback from the group?? Risks I'm not taking into consideration??
Other factors to consider??
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Author: elvistmf Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5651 of 5655
Subject: Re: time to leverage?? Date: 11/18/2008 8:38 AM
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Sounds like a bad idea. (Unless you are buying Berkshire.)

Alot of stocks are not screaming deals yet. Given the outrageous environment I think companies would be more likely than ever to feel OK in reducing their dividend.

If you are leveraged and they reduce the dividend and then some of them take a further dive and then you get forced to sell on a margin call then you have wasted your time and sold at a loss.

Better to buy a total market index, maybe make 3 purchases. If the high yields remain, you win. If emerging markets take off, you win. If stock prices fall further, make another of your three purchases.

Sounds like you recently read The Unemotional Investor or some other Dogs of the Dow book.

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