As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

Click to email CW8888 or Email ID : jacobng1@gmail.com



Welcome to Ministry of Wealth!

This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

It is here where I share with you how I did it! FREE Education in stock market wisdom.

Think Investing as Tug of War - Read more? Click and scroll down



Important Notice and Attention: If you are looking for such ideas; here is the wrong blog to visit.

Value Investing
Dividend/Income Investing
Technical Analysis and Charting
Stock Tips

Saturday, 17 August 2019

Leverage on S-Reits to boost ROC???


Hmm .. interesting!

Is there something with Maths below?

Powerful ROC from leveraging?

For example; if one has $110K capital to invest.


Without margin account:

One can fully invest $110K for e.g. 7% dividend yield



Leverage on margin account :

1. One can invest $100K for e.g. 7% dividend yield.

2. Leverage $40K on margin account at net 3.5% dividend yield after offsetting 3.5% interests payable to broker.

3. $10K as cash reserve to top up margin call when necessary











Does leveraging on margin account to improve yield on own capital look fantastic?

Really?

Or something wrong with the Maths?


9 comments:

  1. With low leverage of 1.4X ... most won't bother to have much cash reserve.

    So base on capital of $100K and borrow $40K @ 3.5% financing will give effective yield of 8.4% (assume your example of underlying 7% yield).

    Current margin ratio is 140/40 = 350%

    Most brokers have threshold of 140% i.e. if drop below then margin call to bring back above 140%

    In our example the $140K will have to drop over -60% to below $56K before triggering margin call. E.g. $50K/$40K = 125%

    Will their reits drop over -60% in next bear? Who knows?

    People look at what happened for those reits that were around during 2008/2009 for once in 50 yrs stress test LOL!

    ReplyDelete
    Replies
    1. i remember in 2008/2009, I had to overcome my fear to subscribe to many rights issues.

      In the end so much so that Greed took over.

      i mean i even subscribed for a lot of excess rights over some counters.

      Of course i got a lot of excess rights.

      This was the time who dares win or die.

      But DBS I subscribed for half of my rights only.

      After Lehman brothers ūüíČ, who dares to subscribe for banks now.

      But i know I have missed to take a mini, mini risk on buying Bac, City Bank because at that time i did not trade on USA.
      How much can ii lost if ii bought 1000 units of BAC or other banks at that time?
      And i have some BAC on DRIP.
      Not anymore soon because i have opened a Joint Account at TD AMERITRADE SINGAPORE.

      WHAT i would have made and lost if ii have traded in USA XC.

      Hindsight is always perfectly logical.

      Delete
    2. Ha!Ha!

      Why now then I still want to trade in USA EXG.?

      Me said b4 to CW, U think U will be out of the market for good after this coming BIG FISHING TRIP.

      I say it again, U think U will but once in "Chiang Wu, Sen Bu U Zi.

      Ha! Ha!

      Delete
  2. The big jump in financing to 3.5% has really reduced the attractiveness of this method.

    Some ppl will just push their luck borrow more for bigger bang. :P

    ReplyDelete
  3. i it is blessings in disguise most of the times when come to counting because can count with fingers and toes only.

    Leverage?

    What ratio is best?

    ReplyDelete
  4. Greed/Fear ratio? Something is that abstract to measure.

    ReplyDelete
    Replies
    1. Got a lot in the market e.g. CNN Greed & Fear indicator, AAII weekly survey, CBOE Put/Call ratios, VIX and other volatility indexes, good old fashioned oscillators on individual charts etc.

      Good overview: 9 sentiment indicators

      CNN Fear & Greed gauge

      China fear Invest when hit 50 & above? LOL!

      Delete
  5. Use of leverage needs caution. 40% leverage is very high and that will need the 10k safety as you shared.

    ReplyDelete

Related Posts with Thumbnails