Author Topic: Huge amounts of non-recourse leverage possible?  (Read 2200 times)

SHDL

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Re: Huge amounts of non-recourse leverage possible?
« Reply #10 on: December 06, 2018, 10:59:54 AM »
ERICOPOLY made a brilliant post (or maybe it was a sequence of posts, I canít remember) years ago on how to do this by combining margin debt with married puts.  Itís conceptually similar to buying LEPAS calls but it comes with certain tax advantages (at least for US based investors) because it allows you to defer the capital gains on your appreciating assets and at the same time deduct the losses on your puts from your current income.  Iím too lazy to find the link now, but Iím sure you can dig it up if youíre determined. 


rkbabang

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Re: Huge amounts of non-recourse leverage possible?
« Reply #11 on: December 06, 2018, 11:06:51 AM »
ERICOPOLY made a brilliant post (or maybe it was a sequence of posts, I canít remember) years ago on how to do this by combining margin debt with married puts.  Itís conceptually similar to buying LEPAS calls but it comes with certain tax advantages (at least for US based investors) because it allows you to defer the capital gains on your appreciating assets and at the same time deduct the losses on your puts from your current income.  Iím too lazy to find the link now, but Iím sure you can dig it up if youíre determined. 

I remember that, I think it was in the Bank of America thread.   I remember it, because I was trying to wrap my head around it and I ended up just sticking to BAC LEAPS. 

LongHaul

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Re: Huge amounts of non-recourse leverage possible?
« Reply #12 on: December 06, 2018, 11:47:57 AM »
Can anyone think of a strategy to take on a huge amount of non-recourse leverage with little down and invest in stocks?
The only thing I could think of was Leaps.

1. Start an asset management firm and charge incentive fees.  Losses on LP capital are non-recourse to you, but you get a nice slice of the upside on any increase in value on that capital. 

2. Invest in the equity of highly levered firms.  Small changes in their enterprise value will lead to large changes in their equity prices, which would be similar to the effect on the value of your portfolio of levering your own balance sheet to buy unlevered firms, with the benefit that debt at the firm level is non-recourse to you.

Both potentially good ideas. 

Equities of highly levered companies act like warrants without an expiration.   

Another option is what Beal Bank did - delevered prior to the financial crisis then lever up when it hit.  Not sure how much leverage Beal used and there are regulatory issues.   

Insurance companies like Berkshire is also an option but probably also regulatory constrained.

Are there any non callable bonds/preferreds or other debt instruments that don't act like margin debt?  Margin lenders get nervous and can call the loan quickly.



ERICOPOLY

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Re: Huge amounts of non-recourse leverage possible?
« Reply #13 on: December 06, 2018, 11:54:21 AM »

Orchard

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Re: Huge amounts of non-recourse leverage possible?
« Reply #14 on: December 06, 2018, 12:00:34 PM »
Equities of highly levered companies act like warrants without an expiration.   

All the highly levered companies I ever invested in eventually expired.

ERICOPOLY

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Re: Huge amounts of non-recourse leverage possible?
« Reply #15 on: December 06, 2018, 12:03:03 PM »
I was going to say that.  The equity values of highly-levered companies acted like unhedged margin portfolios in 2008-2009.

stahleyp

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Re: Huge amounts of non-recourse leverage possible?
« Reply #16 on: December 06, 2018, 12:14:37 PM »
What if you mortgaged your house, put it in a margin account, and with that account purchased far OTM calls.  That seems to be the best way to get HUGE leverage.

It also ensures there will be no assets to fight over in divorce court either.

Or you gonna be multibillionaire instantly (but then the divorce will suck). YOLO!  8)

Nah, if it works out, your wife will think you're a genius. ;)
Paul

sleepydragon

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Re: Huge amounts of non-recourse leverage possible?
« Reply #17 on: December 06, 2018, 12:22:04 PM »
What if you mortgaged your house, put it in a margin account, and with that account purchased far OTM calls.  That seems to be the best way to get HUGE leverage.

It also ensures there will be no assets to fight over in divorce court either.

Or you gonna be multibillionaire instantly (but then the divorce will suck). YOLO!  8)

In 2008, I have seen people whose house was bought at 300k (bought decades ago), and took out a couple millions of home equity loans. A couple years later the house is foreclosured. Maybe that guy used that money to buy stock.
I also had a ex-coworker who got a loan using his house and bought AIG in 2008

Nah, if it works out, your wife will think you're a genius. ;)

stahleyp

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Re: Huge amounts of non-recourse leverage possible?
« Reply #18 on: December 06, 2018, 12:28:04 PM »
What if you mortgaged your house, put it in a margin account, and with that account purchased far OTM calls.  That seems to be the best way to get HUGE leverage.

It also ensures there will be no assets to fight over in divorce court either.

Or you gonna be multibillionaire instantly (but then the divorce will suck). YOLO!  8)

In 2008, I have seen people whose house was bought at 300k (bought decades ago), and took out a couple millions of home equity loans. A couple years later the house is foreclosured. Maybe that guy used that money to buy stock.
I also had a ex-coworker who got a loan using his house and bought AIG in 2008

Nah, if it works out, your wife will think you're a genius. ;)

that sucks for those guys. I was just kidding around by the way!
Paul

Jurgis

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Re: Huge amounts of non-recourse leverage possible?
« Reply #19 on: December 06, 2018, 12:30:41 PM »
What if you mortgaged your house, put it in a margin account, and with that account purchased far OTM calls.  That seems to be the best way to get HUGE leverage.

It also ensures there will be no assets to fight over in divorce court either.

Or you gonna be multibillionaire instantly (but then the divorce will suck). YOLO!  8)

In 2008, I have seen people whose house was bought at 300k (bought decades ago), and took out a couple millions of home equity loans. A couple years later the house is foreclosured. Maybe that guy used that money to buy stock.
I also had a ex-coworker who got a loan using his house and bought AIG in 2008

Nah, if it works out, your wife will think you're a genius. ;)

Bought a house in 2006. MA did not decline horribly though.

Got severance in 2007-2008.

It was great time to get cash.

I did really well with that.

No divorce.

Not multibillionaire.

Yet.  8)
« Last Edit: December 06, 2018, 12:34:10 PM by Jurgis »
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