Evaluating a margin investment

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macandal
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Evaluating a margin investment

Post by macandal » Mon Apr 03, 2017 11:22 am

Does anyone know how to evaluate a margin investment? I would appreciate any help in this. Thank you.

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David Jay
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Re: Evaluating a margin investment

Post by David Jay » Mon Apr 03, 2017 11:52 am

For a newbie, I recommend you just go to your bank, withdraw a few thousand in cash and toss it into a bonfire.

Faster and less angst.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Valuethinker
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Re: Evaluating a margin investment

Post by Valuethinker » Mon Apr 03, 2017 12:19 pm

David Jay wrote:For a newbie, I recommend you just go to your bank, withdraw a few thousand in cash and toss it into a bonfire.

Faster and less angst.
+1 good one!

I would add, not even "for a newbie".

I know people who were financial services professionals, working in investment banks and fund management firms, who cost themselves hundreds of thousands of dollars, or millions, trading on margin.

The dot com crash was spectacular that way.

Snowjob
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Re: Evaluating a margin investment

Post by Snowjob » Tue Apr 04, 2017 9:05 am

Your question is fairly vague. Its kind of like saying -- does anyone know how to procure transit to my place of employment. There are a million variables, if you could be about 50x more specific we could comment rationally.

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David Jay
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Re: Evaluating a margin investment

Post by David Jay » Tue Apr 04, 2017 9:16 am

Snowjob wrote:...we could comment rationally.
I thought my comment was rational.

Cynical, but rational... :wink:
Last edited by David Jay on Tue Apr 04, 2017 11:41 am, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Snowjob
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Re: Evaluating a margin investment

Post by Snowjob » Tue Apr 04, 2017 11:20 am

David Jay wrote:
...I thought my comment was rational.

Cynical, but rational... :wink:
LOL... well I suppose that could be the case :D

macandal
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Re: Evaluating a margin investment

Post by macandal » Tue Apr 04, 2017 2:18 pm

Snowjob wrote:... There are a million variables, if you could be about 50x more specific we could comment rationally.
What would you need to know? I'm not looking to discuss my investment in public, I just want to have a tool to see how well/bad I did.

Thank you.

Snowjob
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Re: Evaluating a margin investment

Post by Snowjob » Tue Apr 04, 2017 2:25 pm

macandal wrote:
Snowjob wrote:... There are a million variables, if you could be about 50x more specific we could comment rationally.
What would you need to know? I'm not looking to discuss my investment in public, I just want to have a tool to see how well/bad I did.

Thank you.
Well honestly if this is after the fact you should be able to calculate your return pretty easily. I'm fairly confused. I was expecting a question like. Should I add X shares of company Y to my portfolio on margin, and a description of the rest of your holdings so we could evaluate the leverage ratios, expected vol, interest costs etc etc. Beyond that would be the discussion on whether the additional risk is even worth taking as a whole given your current financial status. I've used margin many times In the past suffering brutal losses on the way down and fantastic gains on the way up. feel free to take my opinion for what it is or not.

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Pajamas
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Re: Evaluating a margin investment

Post by Pajamas » Tue Apr 04, 2017 2:31 pm

Not sure exactly what you are asking. When you are investing using borrowed money, there is an additional cost and possibly partially mitigating tax factors. Leverage also increases the amount of risk. If you could be more specific about what you are evaluating and in what aspects, you might get more helpful answers.

macandal
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Re: Evaluating a margin investment

Post by macandal » Tue Apr 04, 2017 2:37 pm

Snowjob wrote:Well honestly if this is after the fact you should be able to calculate your return pretty easily. I'm fairly confused. I was expecting a question like. Should I add X shares of company Y to my portfolio on margin, and a description of the rest of your holdings so we could evaluate the leverage ratios, expected vol, interest costs etc etc. Beyond that would be the discussion on whether the additional risk is even worth taking as a whole given your current financial status. I've used margin many times In the past suffering brutal losses on the way down and fantastic gains on the way up. feel free to take my opinion for what it is or not.
No, this is after the fact. I was looking for a more precise tool to evaluate the investment. I did a simple evaluation of the investment but I was looking for a more thorough analysis. Thanks.

Chuck
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Re: Evaluating a margin investment

Post by Chuck » Tue Apr 04, 2017 3:01 pm

You can use the XIRR spreadsheet function. Give it a series of cash flows, and it will plop out a rate of return. That's about as easy as anything to evaluate an investment, after the fact.

macandal
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Re: Evaluating a margin investment

Post by macandal » Tue Apr 04, 2017 3:14 pm

Chuck wrote:You can use the XIRR spreadsheet function. Give it a series of cash flows, and it will plop out a rate of return. That's about as easy as anything to evaluate an investment, after the fact.
Thank you.

jdb
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Re: Evaluating a margin investment

Post by jdb » Tue Apr 04, 2017 5:23 pm

David Jay wrote:For a newbie, I recommend you just go to your bank, withdraw a few thousand in cash and toss it into a bonfire.

Faster and less angst.
I always like one good laugh out loud every day, especially if it is truthful. Thanks David Jay.

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grabiner
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Re: Evaluating a margin investment

Post by grabiner » Tue Apr 04, 2017 9:10 pm

macandal wrote:Does anyone know how to evaluate a margin investment? I would appreciate any help in this. Thank you.
The margin isn't an investment; it is a loan which gives you more money to invest. What you really need to evaluate is whether the investment made with the margin is a good investment (in its returns and risk), and the amount invested.

If you borrow $10,000 to invest $20,000 in stock, then you have the risk of the $20,000 in stock, and you also have the $10,000 loan. Do you want to take the extra risk, compared to just buying $10,000 in stock? And if you do want $20,000 in stock, did you have a better way of getting the $10,000 (for example, selling a bond investment somewhere else to buy stock)?

The other problem with a margin investment is that you may not be able to keep your investment for the long run. Normally, you want to keep your investment intact as the market goes up and down; in the long run, you expect the market to go up. But if the market declines when you have a margin investment, you will get a margin call and be forced to sell part of your investment.
Wiki David Grabiner

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jmndu99
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Re: Evaluating a margin investment

Post by jmndu99 » Tue Apr 04, 2017 9:36 pm

jdb wrote:
David Jay wrote:For a newbie, I recommend you just go to your bank, withdraw a few thousand in cash and toss it into a bonfire.

Faster and less angst.
I always like one good laugh out loud every day, especially if it is truthful. Thanks David Jay.


+1. When I read David Jay's comment, I laughed too.
Read the thread about the guy/gal who wants to remove a delinquency from his/her credit report for more good laughs

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