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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 922  
Subject: Re: time to leverage?? Date: 11/17/2008 3:35 PM
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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.

Oh really? You won't see any pros guaranteeing that. Not in today's stock environment. Oh they'll hem and haw about "should" and "a good prospect" and stuff like that; but no promises. What makes you think you can pick better than the pros?

Also, HELCOs are for home improvement and, assuming you could get one in today's financial climate, you'd be breaking the agreement by using the money for something else. If they find out about it they can demand the entire amount back at once - just when your stocks are down.

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.

I can.

In today's market perfectly good stocks are getting sucked down with the stocks that suck when everybody panics at once.

The trend of the DOW and S&P 500 has been down since October and down for the Nasdaq since December of last year. Upper right hand corner, click on DOW, S&P 500 and Nasdaq one at a time. Then, in the chart that comes up, click on YTD (year to date) and look at the right hand side of the charts. Notice how all the lines go down from left to right?
http://finance.google.com/finance

If you read the boards here on TMF and the Financial Times online and Seeking Alpha and just about any source other than a stock broker's investment newsletter you'll see that most of the people "in the know" are expecting things to go further downhill from here. Some say a lot further.

If they are right and you borrow to invest today you'll regret it six months or a year (or two) from now when the stocks you bought with borrowed money you're still paying interest on are selling for less than what you paid for them.

I invest ONLY in dividend paying stocks and I'm expecting some of them to reduce (or even stop) their dividend if we go into a Depression. If the current troubles turn out to be only a recession hopefully all will continue paying their dividend. But I'm not borrowing money to bet on that.

You mention HELOCs and buying on margin. I guess you could say they're alike; in both cases you're paying interest to use someone else's money. And both are callable. Murphy's Law says they'll be called at the most inconvenient time.

For myself, I'm putting every available penny I can scrape up into my trading portfolio. That new money, plus the dividends and distributions from the stocks we already own, is buying more and/or new dividend paying stocks.

Yes, I'm dollar cost averaging into today's sinking market. If the bulls are right I'm getting in at the bottom. If the bears are right (and I think that they are) I'll be able to buy even more shares later with that day's new money plus the dividends from the "old" stocks.
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