The Answer Is Yes.
A couple of days ago, I wondered if the stock market was a little over-priced.
Today I received an email from one of the many free investing newsletters I subscribe to and the echoed a similar sentiment.
“The NASD, a brokerage regulator, recently sent out an ‘alert’ to investors outlining the risks associated with margin. Through the end of March, the latest data available, the amount of debt taken on by investors to buy stocks totaled $317.7 billion. And while that was a bit below the $321.2 billion record hit in February, it still surpasses the $300 billion in March 2000 at the top of the tech-stock bubble.“‘If you’re borrowing money from your broker to buy stocks, you’re basically speculating,’ says Chris Johnson, investment strategist at Johnson Research Group.
“A sharp rise in margin debt means investors are eager to own stocks. And such spikes are often associated with market tops, as was the case in 1929 and 2000.
“Sure, investors have a chance to boost returns by using other people’s money – a technique called leverage – to buy more shares than they could on their own. But buying on margin is just another form of debt, another IOU, another buy-now-pay-later transaction.
“‘We’re not trying to set off alarm bells,’ says Elisse Walter, senior executive vice president at NASD. ‘But with margin debt (near record levels), we felt it was a good time to remind retail investors what margin is, how it operates and what the risks are.’”
Seems like the market is a bit overvalued. It may not necessarily correct but there’s no point taking on unnecessary risk. So I’ve decided to cut back on my margin holdings. I don’t usually have a lot of stock on margin but sometimes it just creeps up. I had about 12% of my portfolio on margin which I’ve scaled back to 8%. I’m thinking I’ll lower that down to less than 5% if not 0 in the next few days.
It was 0 in January, but like I said, it has a habit of creeping up on you. Plus I recently sold some of my stocks with gains and pulled 10% cash out of my account to cover some rental vacancies and part of a car purchase for the wife. That also caused the margin-to-portfolio ratio to increase.
If you found this post helpful, consider donating to my coffee fund!![[del.icio.us]](http://images.del.icio.us/static/img/delicious.small.gif){kind=small}
-
Best Trade of 2009 Almost exactly a year ago, I mentioned a paired-trade between the long-term Bond ETF (TLT) and short-term corporate/sovereign bond ETF (AWF). I went long AWF and shorted an equal dollar amount of TLT. Last week, I closed the position after holding it for just over a year. When I entered...... -
Long-Short Bond Trade: Now With Reduced Volatility! In a previous post on Deleveraging, I promised I'd talk about an interesting long-short bond trade that I entered last week. If you believe that US Treasuries are over-valued, or foreigners will lose their appetite for US debt thus forcing up the interest rates, you're probably looking to short treasuries. ...... - Is The Stock Market Overpriced? The Dow has currently been up 24 out of the past 27 sessions. From what I've heard, this is a record. Its NEVER done this before!!!!And its not like the US economy is rock-solid. According to Chuck Butler of Everbank.com, the US unemployment rate should actually be at 12% instead......
Related Websites
- DOW JONES - Stock Market Crash 2010 The Dow Jones Stock Market Crash of 2010 looks like it's begun, with the third week of trade for 2010 showing a 5% decline from top (see Chart below). A stock market crash is defined as a sudden dramatic decline, of 10% or more, in the stock market index. So,......
- History Of The Stock Market This guest post was written by ABCs of Investing - a brand new site for novice investors which offers two short and quick investing posts per week. Feel free to subscribe to the feed. How 'bout them stock markets? Hmmmm...not so good? Well, whatever you do - don't wimp out......
- Is the Worst Behind Us in the Stock Markets? Yesterday I saw an interesting poll on Yahoo! Finance that asked, "With the stock market showing renewed strength is it safe to buy?" As of now, the results are as follows: Yes. We've bottomed. 28% Stocks will trade sideways. 30% No. This is a head-fake. 42% 64410 Votes to date......
[All content is copyright of Living Off Dividends & Passive Income]
Leave a Reply