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Lulupoopsalot (87.93)

Be Afraid

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June 20, 2013 – Comments (6)

Be Afraid

I have been very bullish on this market since the summer of 2009. Some may say I was a bit late to the party having waited over three months to participate. But I'm a cautions investor these days. I don't like risk and I hate playing on margin. In fact, I can say my absolute worst mistake ever was playing on margin and watching a 3% drop eat away at 9% of my total portfolio in a single day. Margin is dangerous even for experienced investors. As a result of this caution I have been all cash except for what I call "vegas money" since early May of 2013 and have turned very bearish.

The reasons are many but let's focus on one in particular: Margin.

Imagine my surprise when I started doing a little research (statistics found here) and found that just before the 2008 crash margin levels had reached all time highs in the stock exchange. Peaking at $381,370 ($ numbers in millions) in July of 2007. Then reaching a low in February of 2009 at $182,160 ($ numbers in millions) right before the market bottom in early March of 2009.

The last four years look like an exact replay of that scenario. Margin levels have recently hit record highs yet again peaking in April, the most recent statistics available, at $384,370 ($ in millions). Now with the market in decline to the tune of triple digit moves, considering my experience, it will only be a matter of a few percentage points before margin players begin pulling back.

 

Just in case the link doesn't work...here is the webite I cited.

http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=tables&key=50&category=8

6 Comments – Post Your Own

#1) On June 20, 2013 at 12:17 PM, jiltin (26.89) wrote:

I hope you would have seen this already!

http://caps.fool.com/Blogs/15542-dow-and-1687-sampp-/829721

 

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#2) On June 20, 2013 at 2:49 PM, Lulupoopsalot (87.93) wrote:

I hadn't seen that one...thanks for the link.

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#3) On June 20, 2013 at 8:59 PM, ryanalexanderson (< 20) wrote:

Zero hedge has been keeping an eye on it too:

http://www.zerohedge.com/news/2013-05-28/nyse-margin-debt-rises-new-all-time-high-net-worth-slides-record-low 

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#4) On June 21, 2013 at 2:04 AM, awallejr (83.97) wrote:

Nothing to be afraid of.  If you can't stand the heat stay out of the kitchen.  Yay an idiom that works.

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#5) On June 22, 2013 at 1:35 PM, valuemoney (99.99) wrote:

You are right about margin. I am not afraid at these levels though. Not at all. There are still many deals out there relative to other investments. I am 100% long. I own WFC. I only own WFC. I would add to the position if I had any more money even though it is near 52 week high and an all time high. It is not expensive by any means. Didn't sell in May and received a nice fat juicy dividend because ex dividend date was 5/8/13. Even after that why sell? I value WFC well north of $41 dollars a share. If I own some garbage stock right now and don't have a clue what it was worth or if I was a short term trader or used margin I would be afraid too. But I would be afraid at ALL times then. Not just right now. Good luck to anyone trying to time the market......they will need it.

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#6) On June 24, 2013 at 3:07 PM, elcid24 (51.35) wrote:

#5) I would add to the position if I had any more money

Why not buy some long-dated calls?  I would hardly think you'd consider that risky, considering you're already 100% long one stock and yearning to buy more. 

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