03 September 2012

In a preparation to go into Stock Margin Financing

After so many years investing in stock market, I finally made a clear decision to go into shares margining. Some of the reasons why I wish to use margin financing:
  1. Start using debt financing in buying assets. This is a mental change after I made the 1st property purchase in Johor Bahru, Malaysia. Some of my neighbours now tried to sell the same house type at price of more than RM550K. I started believing that a good debt could make your life changes after several round of successful investment. 
  2. In Singapore, the SIBOR rate remains in near to 0%-0.5% range. The margin financing charge could be as low as below 4% in SGD term. If you really know how to use the leverage to invest in steady investment, it may create a better opportunity for you to earn a better rate of return while putting aside excess cash for emergency use. You may find the link below for better explanation.
  3. Leveraging could lead to a bad or good result, due to the investment decision you made. I found out that many investors can make money from property market but not from stock market, partly because investors tend to do more homework before making their decision as property investment could lock up their cash for quite a long time before they dispose of the property. For shares investment, many of the investors would like to earn fast profit and they tend to follow news to speculate and have no intention to hold the stocks for long enough for it to double up the price. In recent property boom in Singapore and Malaysia, I have seen the property investors double up their investment in market price and they can wait for 3-5 years to wait for property price to go for 100% higher than their investment cost. 
Although the interest cost is about 3.5% in Singapore, however, I believe the more price volatility in Singapore stock market could incur a "margin call" to require you to top up the cash to avoid any "force sell". My idea is to go for the steady investment (low beta stock price) with leveraging, and have to cut loss or cut profit whenever there is a market trend changes, but it would incur opportunity cost as well as higher trading cost. We have to set a right attitude in investing stock using margin financing. Of course, it would be good if we can make a fast profit from here, but it is wise that we can set a target price and re-act whenever the market has changed.


3 comments:

  1. Could you please elaborate on how a margin of under 6% is achievable in Singapore for a long term investment?

    My understanding is that [presumably due to collusion] the only rate in the market is 6%. This is indeed a very high interest margin - 500 - 600bps, for a low risk, short maturity revolving loan.

    Referring to your link, the 3.5% Kim Eng rate appears to be just a "teaser" rate, applicable for just a short period, and only for loans above S$100k, and further subject to a max of S$200k!

    Thanks,

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  2. Hi,

    So what amount are you looking at? It is similar to Property Investment, as you have to take a loan of 80% to purchase 100% worth of value asset. So, imagine if you are having only 100K, so you can leverage up to 3X to 300K. of course, you have to be prepared for the margin call if the share price drops further. I believe Singapore property investors also will have this issue whenever Bank to call you to top up the different of the bank valuation and your loan amount.

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