Leveraged purchase
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Trading Psychology
Forum Discription: Discuss the psychological aspects of trading such as fear, greed and discipline. Why stocks are bought like perfumes and not groceries.
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1809
Printed Date: 03/May/2025 at 6:16am
Topic: Leveraged purchase
Posted By: aloksahi1971
Subject: Leveraged purchase
Date Posted: 31/May/2008 at 9:25am
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Basantji,
1. I have made the cardinal mistake of purchasing a few stocks in the IPO for fliiping through Bank Loans.The Stocks are
a. Reliance Power
b. Jyothi lab
c. REC
For these the interest is comming to about 15% of my monthly Income.
What should be done at this stage.
This statergy helped me in Power Grid and DLF and a hand some profit was made.
Should one book loses here (5 times my monthly income ) or wait and watch.
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Replies:
Posted By: basant
Date Posted: 31/May/2008 at 11:44am
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There is nothing wrong with leverage per se but it comes with a few caveats. a. Is the leverage big enough to throw you out of a position on a bad day? b. What is the quality of the underlying asset in this case the stocks that you bought? More then 80pc people buy a car which is a sure shot depreciating asset on leverage but no one repents that decision because it does not create foreclosure even though the asset loses value as you bring the vehicle from the showroom to your garage unlike a stock which does not lord value just because the broker transfers the shares from his pool account to your demat! c. People do not get cut because of the interest on the leverage but because of irreparable capital loss. Now in this case take a situation where you had surplus cash to invest so would you have bought these stocks with that cash. What is the potential of these stocks? I think these questions would provide clear answers. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: valueman
Date Posted: 01/Jun/2008 at 1:07pm
Suppose ur monthly income is Rs.100 ( only sake of calculation ) then u are paying only Rs.15 per month as interest and at the end of the year u would have paid Rs.15*12 = Rs.180 If u book looses now then u are having a loss of 5 times ur monthly income = Rs.5*100 = Rs.500 See where is Rs.180 loss and where is Rs.500/- loss . I suggest that u hold on with ur stocks for 1 year and keep paying the interest .If the market bounces back any time there is a chance for u to cash out . So this is the best out of the worst situation according to me . As regarding leverage for buying stocks I suggest that it be done only by those who are taking up stock activity as a full time profession and who are smart in doing short term trading .For others it is quite risky . ------------- To achieve satisfactory investment results is easier than most people realize ; to achieve superior results is harder than it looks . Benjamin Graham. |
Posted By: kumarrvq
Date Posted: 01/Jun/2008 at 1:40pm
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Another option one can think of in this situation...
#1. Sell all the above 3 stocks (as per my userstanding non of the 3 has future visibility of providing 40-50% CAGR) and take the loss. Those losses you can very well show as capital loss during tax return filing.
#2. What ever cash you get after selling above 3 stocks, invest in stocks TED stocks list which has probability of 60% CAGR.
#3. Continue paying 15% interest.
Suggestion by Valueman is also good but only thing here is "When market recovers what is the probability that these 3 stocks will recover"?
In my personal view, placing money in any stock with strong fundamental and good future earning visibility is better irrespective of how much down it is now. ------------- Thanks & Regards, Harry |
Posted By: aloksahi1971
Date Posted: 01/Jun/2008 at 5:48pm
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I clearly understand the view. Thanks to Valumanji I have a new way of looking at this.I am learning through my mistakes . My overall porfolio has not gone into red even after the Jan to now correction. I had lost perspective and Waited for the much awaited Pre budget rally.That nevercame. |
Posted By: valueman
Date Posted: 01/Jun/2008 at 5:53pm
Treat this experience as a very valuable lesson for the future .It is always wise to reflect on the Words of Market Legends like Buffett & Graham . Kindly reflect on the message of Graham in my signature . ------------- To achieve satisfactory investment results is easier than most people realize ; to achieve superior results is harder than it looks . Benjamin Graham. |
Posted By: aloksahi1971
Date Posted: 01/Jun/2008 at 6:21pm
| The interest payment though not much has a scary effect and scaring effect on the 1st day of the month and brings home the fact that an unplesant investment has been made. |
Posted By: valueman
Date Posted: 01/Jun/2008 at 7:09pm
I do understand the difficulty in making a payment every month to a faulty investment . More than focusing on the negative , focus on preparing urself for the next investing phase . Learn from ur past but do not keep thinking over it and get upset .Use the present time to focus on finding better stocks for the future .Opportunities always keep knocking everyone at every time only that we must be prepared to cash on them when time comes . ------------- To achieve satisfactory investment results is easier than most people realize ; to achieve superior results is harder than it looks . Benjamin Graham. |
Posted By: basant
Date Posted: 01/Jun/2008 at 7:22pm
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Agree with Valueman. When markets fall they take down all stocks with them. Over a period of time the good ones will recover fast so what you need to do is utilize that cash to switch from bad businesses into good opportunities. Bear markets are an ideal time to 'wash your sins'.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: omshivaya
Date Posted: 01/Jun/2008 at 7:47pm
Alok jee, think of it as a "bitter medicine"? It too shall pass. Meanwhile, let's al prepare purseves for the next bull market leaders. Bear markets provide the best opportunity to get into those 50-100 baggers of tomorrow though patience would be tested ruthlessly. ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: aloksahi1971
Date Posted: 03/Jul/2008 at 11:09am
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Basantji,
In case a person has leveraged position.What should be the stratergy:
A. To pay the interest and use other funds for purchasing equity that have come down alot?
b. To pay off the loan in total without a thought for fresh investments?
Washing off the sins is easier said than done as before selling it is only paper loss but as soon as the phone is kept down it is the actual loss.
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Posted By: nitin_jagtap
Date Posted: 03/Jul/2008 at 11:26am
True BMji I share your thoughts
For cleansing acts of all the sins we need to be there for atleast 12 -18 months ...then investors wont take things for granted and respect Mr.Market and the equity cult.
http://www.theequitydesk.com/forum/search_results_posts.asp?SearchID=20080703232027&KW=sins - http://www.theequitydesk.com/forum/search_results_posts.asp?SearchID=20080703232027&KW=sins ------------- Warm REgards Nitin Jagtap |
Posted By: shivkumar
Date Posted: 03/Jul/2008 at 11:53am
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please correct the spelling to leveraged purchase and not as rendered |
Posted By: franklin
Date Posted: 11/Jul/2008 at 3:42pm
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From the Indian Investment point of view it is always recommended to opt for SBI (state bank of India) or RIL (Reliance Investments Limited).One could also try out Bharti.Also try taking a look at look at L&T, DLF, and IDFC. This stocks are highly recommended for the year 2008. ------------- http://www.frintempletonindia.com/GeneralAccess/Mfs/TIGF.asp - Growth Funds |
Posted By: gopal
Date Posted: 11/Jul/2008 at 4:02pm
Franklin Bhai,
If I am not wrong then
RIL == Reliance Industries Limited
Rgds ------------- Women are like the stock market Coz they're irrational n can bankrupt u if u're not careful |
Posted By: aloksahi1971
Date Posted: 20/Oct/2008 at 4:47pm
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Basantji,
Today I came out of my shell liquidated my FD and paid for the sins I had commited as the prospect of repaying the capital on sale of stocks has become a distant dream.Also this Debt was having a Phyco effect on me and not allowing any new purchase.As i Understand this is the time to go for the good stocks available at right prices.
Also I was wondering if this is the right time to invest the interest I was paying a month about 40k in Franklin Bluechip fund through the SIP route.
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Posted By: jain208
Date Posted: 20/Oct/2008 at 4:50pm
If you want to go for mutual funds I guess Nifty Bees or some other Index fund should be a better option. Fellow members, what's your opinion? Abhishek. ------------- ======================================= The more it changes, the more it’s the same thing. |
Posted By: pramodjain
Date Posted: 20/Oct/2008 at 9:29pm
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in 1992 index at roughly 4000 Harshad Mehta Time in 2002-2003 index was below 3500. It means index is given nothing in almost 10 year. So I recommand go stock specific.
if you consider the composition of the index of 1992 now there is a huge difference. It is my feeling if index commety do not changde the composition of the index it is still at around 4000 mark ------------- "We simply attempt to be fearful when others are greedy, and greedy only when others are fearful." |
Posted By: Hitesh Shah
Date Posted: 20/Oct/2008 at 10:00pm
With the Nifty or Sensex index funds (and with most large cap funds), you'll become owner of Ambani shares whether you like it or not  .
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Posted By: aloksahi1971
Date Posted: 24/Jan/2009 at 3:54pm
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A long time back Udyan babu had commented 'its time to at least sell the furniture and get into the stocks if not the house' I wonder what his thoughts are for next few sessions.
Now brokerages are offering new products rather than leverage on the shares in the bull market it was some times 400%. Now they offer a 6% guranted return by using the arbitrage available on NSE and Bse for just parking ones portfolio with them No Loss/No Share sale guranteed.
Reminded of MADOF ------------- Born To Golf forced to work. |
Posted By: Hitesh Shah
Date Posted: 24/Jan/2009 at 6:48pm
Nice signature! ------------- |
Posted By: basant
Date Posted: 20/Aug/2010 at 3:57pm
Rakesh Jhunjhunwala is leveraged 200%-300%!!!
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: aloksahi1971
Date Posted: 20/Aug/2010 at 6:25pm
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I guess when one is fully invested and does not want to liqidate for another mouth watering opportunity he has to go in for the leveraged route for this.
Now when TCSEr talks about IPO financing it is all about leveraging and then selling on listing as even the margin put up is leveraged .Also it is my guess and firm opinion that the listing gain is actualy a factor of the interest component build into the share cost during the ipo .This depends on the level of oversubscription , interest and margin that the HNI puts up. ------------- Born To Golf forced to work. |
Posted By: Monkey
Date Posted: 20/Aug/2010 at 9:45pm
Basantji,
I find this difficult to understand. Does he mean his trading portfolio where he paid about a third to half of notional value as margin and rest is leverage, which results in 2 to 3 times leverage on his capital? or something else? I think he is talking only about his trading portfolio here and not his long term investments.
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Posted By: nannu_68
Date Posted: 22/Aug/2010 at 9:40pm
am i right, basant? or is there something which i am missing?" your view?? ------------- nannu |
Posted By: Circuit
Date Posted: 22/Aug/2010 at 10:30pm
Actually what he meant was that as per the insider information, RJ has pledged his entire holdings in Titan and so will not sell his shares
------------- Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them....Ed Seykota |
Posted By: TCSer
Date Posted: 22/Aug/2010 at 10:44pm
In my opinion leveraged best works with retail quotas in IPOs specially during bullish times. 1) Interest cost @ 12% for 12-14 days 400-500 rs while returns are 2- 7000 rs per application for good IPOs.Using ASBA even further reduces interest cost. 2) One gets incentive of 100- 300 incentive pr application from sub broker 3) One can hold on to IPO allotment if he is confident abt generating more than 12 % interest cost annually.I have been holding on to REC,COX & KINGS,STANCHART,ITNL,DB CORP,OIL,EIL,UNITED BANK , SKS MICRO which have been having a positive impact while NHPC & SJVN have been a big letdown. I hace got out of ahots of IPOs at decent profit like JFL,HMVL,TALWALKARS,DQ,ISFT,PERSISTENT ETC |
Posted By: basant
Date Posted: 01/Apr/2011 at 1:04pm
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: barla
Date Posted: 01/Apr/2011 at 1:37pm
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Any reason for posting this. The markets have just shot up. Or you may be reading some book and decided to put it up as it is interesting. And I am linking it to market events. Talib talks about this corelation very nicely in his books.
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Posted By: Mohan
Date Posted: 01/Apr/2011 at 12:00pm
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In connection with the markets having shot up, Rumor has it that one bear speculator who was recently in the news is caught heavily short the nifty by a silent bull who has the same last name as another (in)famous personality. ------------- Be fearful when others are greedy and be greedy when others are fearful. |
Posted By: leo2007
Date Posted: 04/May/2011 at 10:49am
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How do we take OD by pleding shares ? How do the bank calculate the OD limit ?
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Posted By: basant
Date Posted: 04/May/2011 at 10:59am
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They provide 50% of the value of shares pledged but that valuation changes each week so one shoul not draw the max possible because in that case amrgin calls could come in anytime. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: VikasG
Date Posted: 05/May/2011 at 12:23pm
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as per RBI rule, minimum value of OD to be given against securities is 50%, but if you have a good relation with bank/lender and the portfolio of the lender/bank for the LAS product is big then you can even have 75% of the pledged value as OD.
Available limit it set on a daily basis as per the LTP of the security pledged.
Also, you need to have atleast 2 securities for having the OD facility with maintaining ratio of 60-40%.
You will get 3-5 days of time for getting the margin in order incase of margin gets reduced. ------------- Cutting losses is like performing surgery on one arm with the other’ |
Posted By: leo2007
Date Posted: 05/May/2011 at 12:39pm
| I think we can avail the OD only against the shares approved by the bank. |
Posted By: Kautilya
Date Posted: 05/May/2011 at 12:55pm
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There would be a processing fee of about 0.5% of the loan amount. The approved scripts usually consist of large cap names. ------------- My indecision is final. |
Posted By: VikasG
Date Posted: 05/May/2011 at 2:13pm
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But if you have good relation with the bank, then you can get a special approval for scrips not in the list of the bank/lenders. Atleast I have never even looked at the approved list , I just pledge and they accept it , even if its not in the list. Only criteria is that it should be less then 25% of the total loan sanctioned. ------------- Cutting losses is like performing surgery on one arm with the other’ |
Posted By: Monkey
Date Posted: 05/May/2011 at 2:15pm
Tejas,
I do invest regularly without waiting for correction.
In past, I did this "waiting for correction" thing. But it did not work out well. I did not invest any money since middle of 2006 waiting for correction till the time we got correction in 2008. By this time, my targeted stocks ran away in price. When I got correction finally in 2008, I started investing rather early in correction. By the time market reached bottom in October 2008, I had run out of money. On an average, there was not much difference had I bought in 2006 itself.
Therefore, I have now decided to buy, as & when I have cash, whatever stock seems fit at that time out of ones I am regularly observing. I am 100% invested except for contigency money in FD & liquid funds which will be good enough for more than one year of my expenses.
After I read today Basantji's post, I am feeling more comfortable in following above. I will keep investing regularly and if at all we get massive correction, I will try to put in big lumpsum following Basantji's idea. This I intend to continue till we get very obvious over-valuation like we got in 1992 or FD rates go well above 15%. In either of above scenarios, I will sell almost 100%.
I am not sure whether this is right thing to do or not. It depends on individual comfort factor. Hence, decide what suits you best and does not keep you awake in night.
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Posted By: VikasG
Date Posted: 05/May/2011 at 3:14pm
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To really make "Leveraged purchase" meaning in simple term = Only and Only a trader can use this tool and make some meaningfull money with this wonderful and beautifull tool.
ONLY USE THIS PRODUCT IF YOU HAVE GUTS AND BALLS TO FOLLOW TRADING RULES AND ARE READY TO LOSE YOUR MONEY WITHOUT ANY FEAR. ------------- Cutting losses is like performing surgery on one arm with the other’ |
Posted By: kmp_saij
Date Posted: 05/May/2011 at 5:22pm
really a good & practical idea!
But not every one has as conviction as you their stock ideas and so can not be invested 100% or more than that in equity.
I personally do not prefer to invest more than 70% in equity. though it is nice to follow Basantji's idea if you have full conviction about stock idea OR mkts are in sell-off mode and you don't have money to invest, in that case, you can borrow money from your 'Future YOU'.
Many thanks for sharing such useful insights. ------------- Own whatever’s feared, shun whatever’s beloved. |
Posted By: retailinvestor
Date Posted: 06/May/2011 at 3:05pm
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Leverage is a wonderful tool but I will be very wary when the interest rate is 18%. The interest rate is just too high for me especially when the share market index is high and very volatile. I would rather pay off my house loan debt if any! I use leverage in overseas markets but the interest rates are much lower and dividend yields much higher than in India. My current leverage ratio is 30%. I borrow against a widely diversified portfolio than just a few stocks. For me leverage is a long term tool and important part of my overall investment strategy. I also make sure that leverage is manageable (interest) from monthly salary and I drip feed on a regular basis whenever possible(banks like that and will lend you money easily when you are known to reliable and good user of their debt). |
Posted By: tejas.k
Date Posted: 06/May/2011 at 10:21pm
thanks monkey. good strategy that.
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Posted By: nannu_68
Date Posted: 28/Jun/2011 at 4:50pm
I have been using the facility for last one year and am pretty satisfied. one thing to iron out with them would be to fix the rates, if possible. i started with 13% and the same has been revised twice with a jump of 0.5% each time. so the present rate for me is 14%. i am trying this so as to work out how i can leverage my assets to increase the returns.. your experience on the same would be helpful.. anyone else using Loan Against Securities facility.. ------------- nannu |
Posted By: tejas.k
Date Posted: 28/Jun/2011 at 5:45pm
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@nanu and others who are using this, to me this doesn't look easy... because you need to make atleast 13% (or whatever is agreed upon) profit in order to gain something... moreover, this can be ugly if the stock crashes. could you tell what strategy you adopt to buy when use leverage?.. is it that you have a very very strong conviction in stock that you are buying, or the stock is highly under valued or something? @jagbir, sorry for hijacking your thread. |
Posted By: rajnsharma
Date Posted: 28/Jun/2011 at 6:08pm
This strategy is a good when you you have a monthly cash flow(salary) and you feel buying at one go is better than spreading it out. You can buy at one go and then pay back the loan on monthly basis. ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: prabhakarkudva
Date Posted: 28/Jun/2011 at 6:49pm
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Also like Boss keeps re-iterating - the most important thing is what you buy with that money. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: Monkey
Date Posted: 28/Jun/2011 at 8:09pm
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I think leveraging should not be used in normal circumstances. However, there are times, once in a while, where there is compelling case for investing lump sum due to wide spread undervaluation, say for example sensex goes to 12000 and takes lots of fundamentally sound stocks with it. It makes sense in such times to borrrow against portfolio and pay back from regular cash flow.
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Posted By: jagbir
Date Posted: 28/Jun/2011 at 8:40pm
These are exact words explaining my motive. I've smooth flow of salary and sometimes feels buying at one go could yield better results. I can then easily pay out the loan over a period of time per my convenience. This has happend 2-3 times, like I really wanted to add much more Zydus when it was hovering 380-384 but I didn't had resources. By staggered buying, my average price for Zydus is 534 now. 
btw, talked to representative again, he said the interest rate is floating so might increase/decrease as per market. Processing/recurring charges are negotiable.. I'm trying to get best possible. |
Posted By: basant
Date Posted: 28/Jun/2011 at 9:07pm
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For me the interest rate is 11.25pc with zero processing charge so negotiate hard.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: pamswam
Date Posted: 28/Jun/2011 at 9:22pm
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Just a spin, don't know you can do it in India. If you've already built up your stock and want to add more to the count, you can write a "very long expiring call" [covered call with very long expiration] with reasonably far OTM and use that money to buy up more stocks. Basically, "selling" time to "buy" stock... Not done this personally, yet... just an idea.. ------------- One cannot travel an alternate path of the past and as well know the path future will take! |
Posted By: ambore
Date Posted: 28/Jun/2011 at 9:53pm
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Deleted. ------------- Ramana Rao Ambore |
Posted By: jagbir
Date Posted: 28/Jun/2011 at 10:01pm
Basantji, is this interest from beginning or they just lowered after some time based your history/portfolio etc.? I'm doing my best but he is insisting that on interest part he can't do anything right now but certainly based on my relationship, bank can reduce it over a period of time. |
Posted By: jagbir
Date Posted: 28/Jun/2011 at 10:05pm
I'm too naive for such strategies 
right now, I even don't know how to sell a share .. just buying is what I can do right now.. 
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Posted By: ambore
Date Posted: 28/Jun/2011 at 10:57pm
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For the benefit for other members, re-posting my experience from Jagbir's portfolio. "Wanted to share my lessons learnt from overdraft. Made my first investment around 1997. Started using ICICI overdraft facility from 2003. I think the interest rate was 10.75 %, which got revised to 16 % ultimately in 2007. I used to have different portfolio returns printed based on how much of my portfolio is leveraged for various return rates - like 50 % leverage at 25 % return, 50 %leverage at 20 %, 50 % leverage at 15 %, etc. for 20 years. I used to keep the printout in wallet and refer to that frequently. The printout is quite similar to ready reckoner that Basantji's mentioned in one of his threads. Portfolio multiplied 9 times in from 1996 to 2007. Parked some of the leveraged money in real estate. Even the returns on real estate sky rocked in a short period. I think the portfolio value peaked by end of 2007. It was like a double dhamaka. Started seeing the other side of leverage when the market started tumbling. Interest got added every month to overdraft account. Interest rates started going up. Held on to portfolio hoping for the market to recover. Every small jump in the market gave me a false hope. Ultimately, ICICI liquidated half of the portfolio Sep 2008 and the second half in 2009. I never thought in my life I would sell Reliance, Kotak, Nalco and SBI in my portfolio. It was forced on me ultimately due to my greed and over ambition. Started with a small portfolio in 2009, which I sold it in again 2010 to complete final stage of the construction. The next portfolio is anyway shared in my portfolio thread. So, friends, please don't leverage the portfolio. If you do please keep a close watch on the cost of the funds. Please remember the interest is compounded every month. So, you lose even when the market is not moving. When the market is too volatile, be prepared for the margin call either due to increase in the margin % or loss on the value of the shares. When the things go bad, let the portfolio be liquidated, do not add money or shares as margin. I made good money by leveraging the portfolio and investing most of the proceeds in real estate. The money invested in outskirts of Chennai multiplied many times. However, if you ask me if I do it again, definitely not - the emotional stress is not worth it. " ------------- Ramana Rao Ambore |
Posted By: rajnsharma
Date Posted: 28/Jun/2011 at 11:28pm
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Thanks Ambore. Your story certainly makes me think again as I am toying with the idea of leverage. Two things I was thinking of when leverage:
1. Leverage should not be more than 25% of the portfolio, so that even if the market tanks by 50% no need to pledge further. 2. Leverage should not be more that one year of cash flow for a salaried person. Let me know your views. Regards, Raj ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: ambore
Date Posted: 28/Jun/2011 at 12:03pm
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The margin limit that the lender expects depends on combination stocks and their weightage in the portfolio. Due to market volatility, regulators/lendors sometimes impose additional margins due to which your borrowing limit is reduced from 50 % to 40% or even lower. On top of that, if a security which has a higher weightage is removed from marginable securities list you get impacted. At the end, you need to know what you are getting into and be prepared for the worst. Even the best of the things would not survive market tsunami when it happens. ------------- Ramana Rao Ambore |
Posted By: nannu_68
Date Posted: 29/Jun/2011 at 3:28pm
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Leverage is two edged sword and the cons have been brought out very clearly.. but leverage also can give boost to your earnings if applied correctly.. leverage only the amount which you can service without getting margin calls.. when and how much are very important aspects when it comes to leveraging.. utne paon pasarieye jitni apki chaadar hai.. control your greed and i think you can ride this beast to your advantage..
------------- nannu |
Posted By: jagbir
Date Posted: 29/Jun/2011 at 4:05pm
This looks serious. I inquired with agent, difficult to believe his words but he assured that after a security get pledged, they won't remove it from the list. On other hand, from my portfolio they don't have Hawkins,Mayur,Jenburkt in their list, so these will be excluded. wonder on what basis they included TTK Prestige but not Hawkins..
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Posted By: VikasG
Date Posted: 29/Jun/2011 at 4:10pm
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the reason for taking securities as pledged is that incase of default/ or client cant not cover the shortfall in mark to margin, then the lender can easily recover the dues by selling the pledged securities and hence only and only the companies which has high volume daily, is added in the list. You cant argue that hawkins is good company and it should be added in the list, because in case of lender wants to sell the position , he wont be able to recover his dues by selling as the volume is low and wont support his selling pressure, hence only high volume securities are allowed.
But , you can get the securities approved as speacial case, if the total non-approved position is less then 25% of the total securities pledged with the lender. ------------- Cutting losses is like performing surgery on one arm with the other’ |
Posted By: ambore
Date Posted: 29/Jun/2011 at 4:34pm
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I have seen margins going up to 60 % when the market is volatile or portfolio mix and weigtage changed. When a stock moves from current category (let us say 'A' or 'B' group), the margin requirement could get impacted. With ICICI, when you pledge shares they give an overdraft account with seperate trading id and password. It is not easy to get the new password when you forget the password. The password is couriered to local branch contact who in turn will send it to you (you cannot reset it online). If you want to pledge or unpledge you have to go to the bank to get it done. However, if you don't sufficient margin, they will not remove the pledge. Selling pledged shares when you don't remember the password is a time consuming process.
Please check with Bajaj Fiance. They offered a better rate compared ICICI. However, I don't have much exp with them. ------------- Ramana Rao Ambore |
Posted By: patra04
Date Posted: 11/Aug/2011 at 8:57pm
Received the following from icicidirect today...Looks interesting
------------- An investment in knowledge pays the best interest. |
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Posted By: rajnsharma
Date Posted: 11/Sep/2011 at 9:02pm
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I am seriously thinking of using the LAS (Loan Against Shares) account to buy more now. The reason for this thought are below: 1. The markets are not likely to fall too much from here unless there is some disaster globally which is hard to predict. 2. The interest rate will be 13% for me but the returns can easily be 25%+ for next 3 years. 3. It can increase my investible funds and will help me achieve my goals early. 4. I am thinking of putting at least 50% in Infrastructure related stocks. Minimal debt and positive cashflow. One of them in Thermax. Please comment. 1. Leverage is not more than 25% of my portfolio and I should have the capability to return it within a year from my savings(salary). 2. The interest payment is not more than the dividend recieved. Please provide your comments/suggestion. This will help me finalize my strategy quickly. Regards, Raj ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: bitu1978
Date Posted: 11/Sep/2011 at 9:47pm
If you hold any LIC Policy beyond three Years where the Premium is high then you can surely go for LIC Loan .They will offer you 60 % of total deposit at 9 % flat interest rate and the best thing is there are no Processing fees and foreclosure charges. Moreover there is no need to pay EMI you just need to pay interest charges after 6 months . One More Option you can try is going for a government run or reputed private chit fund like margadrasi . My Friend took 8 lakhs loan for 3 years and his interest comp0nent was only 25 thousand for three years which is amazing . |
Posted By: vijayM
Date Posted: 11/Sep/2011 at 11:24pm
1] LIC is better over LAS provided you have that much policy. 2]Buying infra stocks is risky. I would suggest consumer stocks, banking stocks like HDFC bank if investment based on loan. ------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: rajnsharma
Date Posted: 11/Sep/2011 at 11:36pm
Thanks Bitu1978 and Vijay. 1. I have enough of LIC policies but I can't touch them due to emotional reasons(not for me but my family). Hence that option is ruled out. In ICICI, I am charged based on my withdrawl of money from the account, when I put money back in the account, then I am charged only for what I have withdrawn. 2. Thermax is a zero debt company and they are silently adding capacity and acquiring companies. When the next cycle starts it will incash it in no time. I have already 60%+ of my portfolio in consumption theme and I feel they are reasonably valued. Since everybody is singining the same tune, I feel slight disappointment in results can lead to good correction. Hence companies who are not much leveraged from infrastructure space is worth looking at this moment. ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: retailinvestor
Date Posted: 12/Sep/2011 at 3:12pm
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Please don't catch the falling knife with borrowed money - guaranteed to maximize loss. Do take care. Using leverage in volatile share market and in a high interest rate environment is very very risky. Ride in a superbike only if you know how to ride it - chances of skidding are very high. |
Posted By: smartcat
Date Posted: 12/Sep/2011 at 3:42pm
What you are planning to do will work out well for you only if the market rebounds from here and shoots up. But if the market slides down slowly over a period of time because of high interest rates, euro debt crisis and Indian cricket mess, then it could be financially more rewarding for you to average down or buy new stocks under your radar with your salary money. Restricted money supply in the form of monthly salary might actually work out well in this case. |
Posted By: Monkey
Date Posted: 12/Sep/2011 at 4:09pm
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@ rajnsharma,
If you use data from NSE since 1999, Nifty valuations have gone to as low as 11-12 times trailing 12 months earnings. Nifty valuation as of 9th Sept closing is little above 18. This means, there is considerable downside still left in worst case scenario. So, if you want to use leverage, it will be better to wait till & if valuation comes close to historically lowest points.
Based on above, using leverage in current scenario of high uncertainty could be counter productive. It will be better in current situation to use regular cash flow from salary as & when it comes rather than one time lumpsum.
|
Posted By: values
Date Posted: 12/Sep/2011 at 4:15pm
Wouldn't Loan Against Property be better than Loan Against Shares. ? May be the interest rates also would be little less compared to loan against shares... ------------- Knowledge is power! |
Posted By: stockaddict
Date Posted: 12/Sep/2011 at 4:41pm
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In my opinion, leverage is a good idea only if markets are hopelessly down and out, like in 2008 -2009 for ordinary folks. There too high interest laon should be avoided and one can take recourse to loan against LIC policy (around 9%) these days. One must have a 2-3 year perspective even in that case for you to make good returns.
Today markets are neither here not there, you never know it could fall 30% from here, if you are extremely unlucky. Avoid leverage by all means unless you are sure of what you are doing and do not rely on hope! |
Posted By: nannu_68
Date Posted: 12/Sep/2011 at 9:07pm
In a nutshell avoid leverage, if you cant service it.... if you can than anytime is as good or bad as possible.. coz most of the time we dont know where markets are headed 
------------- nannu |
Posted By: rajnsharma
Date Posted: 12/Sep/2011 at 9:46pm
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Thanks everybody for the feedback. It seems almost everybody is not in favour of leverage. I would go with consensus . No leverage at this juncture....just keep the option open if market falls drastically from here, may be 20-30% from here. Regards, Raj ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: j2eeprofessiona
Date Posted: 22/Nov/2011 at 7:56pm
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I was planning to pledge my securities and raise money to redeploy in stocks... can someone suggest if it would be prudent to do so at this stage in the markets... this is the first time in so many years that i am contemplating leveraged "investment"..... kindly advice... |
Posted By: prudentinvestor
Date Posted: 22/Nov/2011 at 8:23pm
The current P/E for the Nifty is at 17.42 based on the Nifty Earnings Per Share stands at Rs. 276.25 as on Nov 21 2011. The recent bottoms tested by Nifty during the 2008-09 bear phase were at 2524 (Oct 27,2008) and 2573 (Mar 9,2009). At those levele Nifty was close to the 12 P/E levels. At current EPS that corresponds to a level of 3312 on the Nifty. So there's considerable downside if there's a sovereign default in Europe. So one should not resort to leverage based on pledged securities at these levels......firstly leverage is dangerous proposition on the losing side and .........secondly the value of collateral will drop drastically with falling prices, leading to further margin calls. ------------- "All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out..” - Peter Lynch |
Posted By: kulman
Date Posted: 22/Nov/2011 at 8:49am
Very prudent advice, Prudentinvestor. Some thoughts from Master(s) on this topic: 'Leverage is what causes people real trouble in this world, You don't want to be in a position where someone can pull the rug out from under you or, emotionally, where you pull it out from under yourself.' Leverage can make you look a like a genius in good economic times but it will turn you into a dumb ass during bad times. If you're smart, you don't need leverage. If you're dumb, you have no business using it. Leverage is the only way smart guys can go broke. You do smart things, you eventually get very rich. If you do smart things and use leverage and you do one wrong thing along the way, it could wipe you out, because anything times zero is zero. I've seen more people fail because of liquor and leverage - leverage being borrowed money. |
Posted By: kulman
Date Posted: 22/Nov/2011 at 9:49am
One more: When you combine ignorance and leverage, you get some pretty interesting results. |
Posted By: valuepicks
Date Posted: 23/Nov/2011 at 1:20pm
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habitually, both these habits go together!
------------- Investment Rule #1: Do not lose capital. Rule #2: Do not forget Rule #1 - Warren Buffett. |
Posted By: pamswam
Date Posted: 23/Nov/2011 at 8:52pm
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member_profile.asp?PF=3580&FID=3 - j2eeprofessiona , Leverage is like a power-boost in a car, you use it when the road is clear and visible, not on a foggy, with lot of traffic! If you are worried about losing value on your portfolio, this is what I'm doing for quiet a while. Buying "puts" with few assumptions a. I'm not looking at selling my portfolio as it for a very long time. b. Don't wan't to make money out of buying puts rather as an insurance. ------------- One cannot travel an alternate path of the past and as well know the path future will take! |
Posted By: vijayM
Date Posted: 30/Aug/2012 at 11:37pm
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I have worked out some details about LAS: comments welcome
If one is sure of making 15% RoR and ready to hold for 3 years, this will workout. ------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: rajnsharma
Date Posted: 30/Aug/2012 at 12:16pm
------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: basant
Date Posted: 30/Aug/2012 at 6:58am
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Your cost structure is too high LAS rates are lower than that. Let me know before you finalize your plan. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: vijayM
Date Posted: 30/Aug/2012 at 11:39am
Sir, I have not finalised the LAS plan yet. I wanted to see its feasibility. I have my 3 in 1 account with icicidirect/bank. They have interest rate of 14% for LAS, 3500+tax for a/c opening and 2500+tax for annual renewal. I tried to see how it works over 3 years with different RoR. I have already leveraged upto 5% of my portfolio with LIC loan at 9%. Suggest me if there are better options available. I am investing about 35K per month from salary presently. Going for 5Lakhs LAS would mean I should keep aside about 6k per month to cover interest cost. Also I feel the right time to leverage may be when there is a huge bargain like titan in Dec2009 at PEG of 0.57 regards vijayM ------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: photon
Date Posted: 30/Aug/2012 at 11:51am
I had recently taken the LAS from ICICI, they charged me INR 2500 (account opening) and 2000 (annual fees) with taxes with 13% interest. As this is an overdraft current account hence there is no "EMI" as such and interest is charged only on the amount that you withdraw. |
Posted By: vijayM
Date Posted: 31/Aug/2012 at 12:02pm
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Thanks for the info. I took data from their website. What I meant by EMI is monthly interest tobe paid. (I agree, EMI is not the right word here)
------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: retailinvestor
Date Posted: 01/Sep/2012 at 1:09pm
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14% is too expensive and the odds are against you I think, well I am 99% certain! Bank will make more money than you would and you would suffer a loss. Sorry to be blunt. My points are 1. Interest rate too expensive plus add other charges 2. Volatile share market and not cheap ( unlike in late 2008/2009 when markets were oversold and interest rates were dropping significantly). 3. Bank is in control ( not you ), when things go wrong (when share prices drop) they will demand more money or they will sell shares at a loss (they won't give a dime whether you are sitting at a loss, they just would want to protect their loan). This is the worst thing to happen. Take care |
Posted By: retailinvestor
Date Posted: 01/Sep/2012 at 1:39pm
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Rajnsharma quote in sept, 2011 - Raj, this will be a useful exercise. You mentioned in sept, 2011 that you wanted to use leverage and wanted to purchase several stocks in infra sector including thermax. Do you think, since now we have the benefit of retrospect, leverage would have increased your net worth if you had invested in sept, 2011 using leverage? |
Posted By: rajnsharma
Date Posted: 01/Sep/2012 at 1:42pm
1. I am confident of generating 20%+ return over next 3 years So interest rate of 13.%(for me) is ok. The biggest advantage is that you have to pay only for the number of days you use the money. Once you return it back from your own cash flow, you don't have to pay interest.
2. I use the money to buy when something from my portfolio(no new stock) falls significantly without any reason.
3. Banks can sell shares only when your collateral falls below the required level and you have not been able to provide additional shares as collateral or payback the money. I have always kept the collateral above by 30% at least with the bank to take care of such a situation.
------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: retailinvestor
Date Posted: 01/Sep/2012 at 1:59pm
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Good going Raj - I posted again just before you did and I thought about you? Good that you are keeping leverage to manageable level. You are confident of making 20% (I assume per year) over next 3 years- confidence is good but you still relying on the market to give you such returns and the last 12 months were not great, index returns I mean. Again we have the benefit of retrospect. I didn't understand what you said about collaterals - but let me tell you, when banks give money to you they are in control, most of the time and they will bend the rules to protect their capital - capitalism created this beast! |
Posted By: prabhakarkudva
Date Posted: 01/Sep/2012 at 2:05pm
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Hello Retailinvestor,
I am sure Raj is only mildly exposed to leverage as a %age of his net worth. So even if things go wrong it won't be a catastrophe for him and if things go as expected he can add a few points to his already great CAGR. You're definitely right though in the general sense that leveraging on 12-13% is fraught with risk but in India we have become used to 20% CAGRs as a given which may or may not be be the right thing. ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: retailinvestor
Date Posted: 01/Sep/2012 at 2:07pm
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Disc- I use leverage, currently 30% of my portfolio is OPM. I use leverage to extend my reach! Interest rate is 6.25%(NZ) and dividend returns are quite significant too. I tried to negotiate the rates but they won't budge since I am not still a significant investor for them(to make money from me). I love banks and hate them too because of the double standards. |
Posted By: rajnsharma
Date Posted: 01/Sep/2012 at 2:13pm
I don't rely on Index. I have more into specific stocks. It may happen that I may loose money on a net basis in year one but 20%+ is very much achievable in next 3 years. If not I will take it as a tution fee and stop using leverage
. My 4 return average returns has been around 30%..thanks to TED..hence the confidence.
Collaterals are shares what you pledge with the bank to take loan.
In the worse possible scenario I can borrow from my family and return to the bank in a few days time, hence no worries and I am covered in all aspects. ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: rajnsharma
Date Posted: 01/Sep/2012 at 2:18pm
Where did you get money at the interest rate of 6.25%. Is it in India?
By the way Prabhakar..you are right ...My position in leverage is not significant. It can paid back by my salary saving in a maximum 2 years time. ------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: prabhakarkudva
Date Posted: 01/Sep/2012 at 2:21pm
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I figured that given our "measured risk aversion" learnt at TED :) ------------- Take your chances and keep them in a box until a quieter time. |
Posted By: retailinvestor
Date Posted: 01/Sep/2012 at 2:27pm
| I edited my reply -6.25% in kiwi land. |
Posted By: rajnsharma
Date Posted: 01/Sep/2012 at 2:34pm
In Kiwi Land:
Interest rate: 6.5% , Inflation: 1%, net interest rate = 5.5 %
In India:
Interest rate: 13% , Inflation: 7%, net interest rate = 6 %
It's almost similar isn't it?
------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: retailinvestor
Date Posted: 01/Sep/2012 at 3:25pm
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Yes, the interest rates are similar to the circumstances prevailing locally. I thought the interest rate is expensive for me and since having been their ( valuable ) customer for the last 2 years tried to negotiate but they won't budge. I guess they want me to overextend my ability to leverage and that is not going to happen - I would rather have more control over my own destiny myself than my bank! Another difference is that dividend returns are a lot higher here and higher than the bank rates in kiwi land! Dividends are real returns and my aim is to increase that over time. I am only an average retail investor and I don't have mathematical abilities that many others have. Seniors have advised me that it is equally important to know what you don't know, than what you know. I invest in 3 different markets and I find myself spreading thin when it comes to investments and exposed to currency risk. At the moment, I am not at all complaining about currency and happily converting dollars. Into rupees. I suppose it all depends on when you want to liquidate (if) and how much you have a cumulated. High returns of the past is not going to come easily - not in the west anyway because other nations have be one smarter and there is no room for exploitation in the old fashioned way. Good luck - we are all punters in this strange game. |
Posted By: vijayM
Date Posted: 03/Sep/2012 at 9:12pm
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[QUOTE=basant]Rakesh Jhunjhunwala is leveraged 200%-300%!!! [QUOTE] How is this possible? This is extremely risky.------------- If a business does well, the stock eventually follows:Warren Buffett |
Posted By: rajnsharma
Date Posted: 03/Sep/2012 at 10:07pm
------------- Wall Street makes money by it's activity, while you can make money by your in-activity - Warren Buffett |
Posted By: vedik
Date Posted: 19/Sep/2012 at 10:48am
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We understand it is very difficult to make a payment every month to a wrongly investment. But, it happens to everyone, important thing is that how much we learn from this sort of silly mistakes. At present, you should have to focus on better stocks for Investment.
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Posted By: lindadale
Date Posted: 20/Sep/2012 at 11:10am
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Its really a scarey thing that we done some wrong investment and waste our money.But there are some ways available to overcome this mistake.I think the best way is wait for the good budget situation.
------------- |
Posted By: satish23
Date Posted: 06/Dec/2012 at 2:42pm
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members please let me know how much interest you are all paying for your LAS in different banks.
i have my d-mat with icici direct,yesterday i spoke to icici bank person & tomorrow i wiil be meeting them for LAS, after so much bargain she came down from 13.25% to 12.75% interest. is it too high??? |