Author Topic: Getting leverage  (Read 16194 times)

Shooter MacGavin

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Getting leverage
« on: May 18, 2016, 08:14:08 AM »
It pains me that we have nearly zero interest rates, yet I can't figure out how to borrow long-term (in the US) to buy public market securities.  I know I can margin for really cheap with IB but I consider that unsafe since we are prone to have moments of madness in the markets. Is there another way to try to get longer term, safer leverage?  I guess one could buy put options to ensure one doesn't get a margin call in a market panic, but that has been generally costly. 

Any other way to get longer term leverage?  I don't have a house so I can't take a second mortgage.

I've tried to short corporate bonds, but to no avail.  I tried to short the UST ETF but it is not available to short.

I would love to buy some (what i consider) safe stocks with long-term, cheap financing. anyone figure this out?  Is there a derivative way to do it, or a broker that will allow me to short bonds? Thanks for your thoughts and apologizes if there's another thread like this.


gg

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Re: Getting leverage
« Reply #1 on: May 18, 2016, 08:18:42 AM »
I haven't tried to do this, and know nothing about it, but could you possibly short US govt bonds? It's more liquid than any individual corporate bond

PatientCheetah

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Re: Getting leverage
« Reply #2 on: May 18, 2016, 09:22:29 AM »
If you have a hard time making money without leverage, it would be a bad idea to use more leverage. Leverage takes far more trading skill and great timing. If your account is above certain size, you can apply for portfolio margining. It gives you more margin than I would ever feel comfortable fully utilizing.
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glorysk87

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Re: Getting leverage
« Reply #3 on: May 18, 2016, 09:25:05 AM »
It pains me that we have nearly zero interest rates, yet I can't figure out how to borrow long-term (in the US) to buy public market securities.  I know I can margin for really cheap with IB but I consider that unsafe since we are prone to have moments of madness in the markets. Is there another way to try to get longer term, safer leverage?  I guess one could buy put options to ensure one doesn't get a margin call in a market panic, but that has been generally costly. 

Any other way to get longer term leverage?  I don't have a house so I can't take a second mortgage.

I've tried to short corporate bonds, but to no avail.  I tried to short the UST ETF but it is not available to short.

I would love to buy some (what i consider) safe stocks with long-term, cheap financing. anyone figure this out?  Is there a derivative way to do it, or a broker that will allow me to short bonds? Thanks for your thoughts and apologizes if there's another thread like this.

You want to lever up in order to buy equities at significantly higher-than-average valuation levels?

Well boys, I think we've found our indicator that we're at the market peak...

fareastwarriors

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Re: Getting leverage
« Reply #4 on: May 18, 2016, 09:26:40 AM »
Take the small margin loan at IB. If the loan is small enough, even if there is madness you should be able to ride it out.

Shooter MacGavin

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Re: Getting leverage
« Reply #5 on: May 18, 2016, 11:08:16 AM »
I haven't tried to do this, and know nothing about it, but could you possibly short US govt bonds? It's more liquid than any individual corporate bond

I wish I could.  they don't let you!

Shooter MacGavin

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Re: Getting leverage
« Reply #6 on: May 18, 2016, 11:11:19 AM »
If you have a hard time making money without leverage, it would be a bad idea to use more leverage. Leverage takes far more trading skill and great timing. If your account is above certain size, you can apply for portfolio margining. It gives you more margin than I would ever feel comfortable fully utilizing.

Well no one is saying I'm not making money.  I am so far (thankfully), but  in theory, if you can borrow safely (long-term, non-recourse) at 1-2% and put it in an asset that has a 12-15% return, and you can do that safely, well I would do that all day long up to a point where I felt that the assets coverage ratio would be comfortable. 

Jurgis

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Re: Getting leverage
« Reply #7 on: May 18, 2016, 11:28:22 AM »
Mortgage or HELOC is the closest you can get to non-recourse (possibly not) and long term and still not 1-2%.

For small percentages of portfolio, yeah, I guess IB margin.
"Before you can be rich, you must be poor." - Nef Anyo

Shooter MacGavin

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Re: Getting leverage
« Reply #8 on: May 18, 2016, 11:28:39 AM »
It pains me that we have nearly zero interest rates, yet I can't figure out how to borrow long-term (in the US) to buy public market securities.  I know I can margin for really cheap with IB but I consider that unsafe since we are prone to have moments of madness in the markets. Is there another way to try to get longer term, safer leverage?  I guess one could buy put options to ensure one doesn't get a margin call in a market panic, but that has been generally costly. 

Any other way to get longer term leverage?  I don't have a house so I can't take a second mortgage.

I've tried to short corporate bonds, but to no avail.  I tried to short the UST ETF but it is not available to short.

I would love to buy some (what i consider) safe stocks with long-term, cheap financing. anyone figure this out?  Is there a derivative way to do it, or a broker that will allow me to short bonds? Thanks for your thoughts and apologizes if there's another thread like this.

You want to lever up in order to buy equities at significantly higher-than-average valuation levels?

Well boys, I think we've found our indicator that we're at the market peak...

I'm flattered you call a market top based on my behavior.  Since you're so convinced, you should probably short the market.

I don't really care much about market levels.  I'm so insignificant, I can always find stuff to buy, with 20-25%+ IRRs. Never had much trouble with that in any market environment.

If you look at the best performing stocks of all time, the fortunes were made on low-cost, non recourse leverage. 

Berkshire, Fairfax, Danaher, Middleby, Capital Cities, everything John Malone does etc etc.

They all behave like private equity in some way..they get a cheap, long-term source of financing (in berkshire's case, negative) and plow it into assets that earn relatively high rates of return.  Of course, some things aren't leveragable and some are.  Some structures are riskier for the borrower, some aren't.  (covenant lite, great for borrowers, dumb for lenders). 

I'm not advocating for margin....because that is marked-to-market, and recourse.  the worst kind.  I'll repeat that. MARGIN BAD.

I would love however to issue 10 year term bonds at 2% and plow it into berkshire which may earn 10-15% for example.  in 10 years my cost of financing would cummulatively be 21% (1.02^10), while Berkshrie may have appreciated 159% (1.1^10)....or a 138% spread, no equity down.

If I could short US treasuries, that's effectively borrowing at the yield, today at 1.76%.  I'll take as much of that as you'll give me.
« Last Edit: May 18, 2016, 11:35:22 AM by Shooter MacGavin »

Jurgis

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Re: Getting leverage
« Reply #9 on: May 18, 2016, 11:33:37 AM »
I would love however to issue 10 year term bonds at 2%

Won't we all.  ;D
I'd prefer to issue 99 year bonds at 0%. But that's just me.  8)
"Before you can be rich, you must be poor." - Nef Anyo