Join our investing community

Managing a Margin Loan Amidst the Mayhem!?

Discussion in 'Investing Strategies' started by PennyWise, 16th Apr, 2020.

  1. PennyWise

    PennyWise Active Member

    Joined:
    26th Jun, 2007
    Posts:
    26
    Location:
    Sydney
    Hi All,

    Just wondering what others thoughts are on Managing a Margin Loan (ML) during the current Crisis and Mayhem?

    I've had a ML since and before the GFC and managed to get through that intact without any nasty forced sell downs! Now with less exposure overall nevertheless I have a ML LVR hovering around the in buffer limit of 65% and have had a few "buffer" calls in recent times which I've managed to attend to thanks to some cash reserves.

    However in light of the ongoing COVID-19 Crisis and subsequent market fallout it is looking like getting worse before it might get any better anytime soon so I'm considering current and more active options as follows:-

    1. Keep meeting any Buffer/Margin calls if at all possible from limited cash reserves.

    2. Reduce exposure to my ML by selling some securities and/or using cash reserves, taking a subsequent loss if necessary due to current the market downturn and paying ML down by at least a third to a half?

    3. Sell the lot to pay down the ML in full, keep the remaining funds/securities invested and Run for the hills!

    I look forward to any and all ideas, suggestions and council from those that have experience and/or knowledge of ML especially in managing them in trying times like these.

    Regards,

    PennyWise
     
    Last edited: 16th Apr, 2020
    twisted strategies likes this.
  2. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    1,358
    Location:
    QLD
    now i have resisted the urge to take a margin loan

    so i can give you no first-hand experience on that

    but there seems to be two main schools of thought on margin loan tactics ( if you think the market has a long way to fall in the near term future )

    1. crystallize your losses and harvest those tax write-offs , i would suggest you consider each sell carefully on a case by case basis some will recover faster than others ALSO do any of your leveraged holdings participate in the DRP so MIGHT add extra portfolio value in a cost effective manner

    2. crystallize your winners ( leaving you open to extra capital gains tax ) as strange as it seems many seem to prefer that , leaving you with a portfolio of your poorest performers ,

    if you choose this path see my suggestion on option 1.

    i am guessing if you sold out completely you would have surplus cash after paying out the margin loan , but surely you would have held some shares worth keeping to form the core of your future portfolio ( in case the market continues to irrationally trend upwards )

    IF you cull most of your losers , does that let you out of the margin loan , letting you retain some of the current portfolio without leverage ( and use any tax refund as spare cash reserves )

    these are troubled times i expect more bouts of volatility in months to come ( that is UPS and DOWNS ) , how about SOME tax loss selling ahead of tax time , and then reduce as opportunities arise in the coming months until your margin loan is completely under control ( or repaid in full )

    there is one theory about 'time in the market , rather than timing the market ( some stocks you might never buy at your buying price again , in my case that is MQG , av SP $26.76 )

    BTW unless you need to retire a LOT of debt you might not even need to sell all of a winning stock you might chose to keep SOME , say like BHP or CBA )

    my thoughts only , cheers

    ( margin loans always seemed to be too much paperwork and stress for me )

    ( DYOR )
     
    PennyWise likes this.
  3. PennyWise

    PennyWise Active Member

    Joined:
    26th Jun, 2007
    Posts:
    26
    Location:
    Sydney
    Thanks for your input and suggestions TS! :)

    I decided to steer a course and hopefully safe passage in between for the time being.

    I sold down about 20% of the Managed Funds used as security in my ML and paid down the ML with the proceeds. Giving a small Cap. Loss that I can carry forward against any future gains.

    This represents (inc. the recent buffer calls) a total ML repayment of 25% and after crunching some numbers and doing some ML simulations, it means the market would need to fall another 25% to put me in buffer again! Which I should be able to meet again from cash reserves depending on the quantum?:(

    Though if that happened, it would represent a total market downturn since Feb of around 45% and put us into unchartered territory indeed and worse than the Wall St crash of 1929! :eek:

    So lets fasten our seat belts and see if we can all ride this one out otherwise all bets are off and the bark humpy in the bush with some chooks and a vegetable patch might be the go! ;)

    Cheers,

    PW
     
    Last edited: 25th Apr, 2020
    twisted strategies likes this.
  4. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    1,358
    Location:
    QLD
    i agree on the potential for a bumpy ride

    but i am near the end of my investing career ( as short as it is )

    buy your chooks early , many will be impatient and prefer to eat that poultry early ( not wait for the eggs ) i would suggest geese they offer a few extra advantages definitely the vege patch , no matter where you live

    10 Herbs That Just Need Water - Indoor Water Plants



    some of these also have medicinal qualities ( awesome when medical clinics are full of sick people )

    How to Grow Herbs for FREE From The Grocery Store




    where to market will go in the next two years , i don't know it has defied logic for so long now

    the known factor is the US Presidential election which historically indicates the ( US ) market will be propped up to the point of absurdity ( maybe even beyond this time )