“Almost every financial blow-up is because of leverage.”
~ Seth Klarman
Nobody wants a margin call!
Though investors invariably increase margin debt during times of expansion, they also inevitably encounter liquidation events.
This chart shows the amplification of leverage on stock markets:
Those gray shaded areas above indicate years of recessions, during which investors sharply reversed investing – some had to sell when they didn’t want to. This is antithetical to successful long-term investing.
Of course, when markets fall, investors should buy quality investments.
You may ask, so where is market leverage today?
As you can see, currently, leverage is rather high.
Do you have a strategy for the next volatile deleveraging period?
Our strategy is to reduce your volatility with our “pension-style” portfolios to help you weather these inevitable market storms!
Wise Quotes On the Dangers of Leverage
- “When you have a family, and a house, and the market is going down, and you’re on margin, it’s probably too much pressure for you to do the right research and the right kind of thinking to make good decisions.”~ Peter Lynch
- “Leverage can never turn a bad investment into a good one, but it has the potential to turn a good investment into a bad one by forcing you to sell at just the wrong point in time.” ~ James Montier
- “A leveraged portfolio forces you to act irrationally when markets are irrational, as opposed to acting rationally when markets are irrational.” ~ Marc Lasry
- “I had a margin call in 1924, and I swore I never would buy on margin again. That’s one of the main reasons I got through the 1930s.” ~ Philip Carret
Your CommonWealth Team
“Leverage, concentration and illiquidity are the three things that can kill you.”
~ Steve Cohen
