August 20, 2007, 7:00 am

When Would Be the Best Time for Leveraging? Right Now!

by: The Financial Blogger    Category: Leveraging Strategies
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Markets are going down and I expect everybody with a brain to invest their available liquidity in the following months. I know, this is not the first time you hear that, but people just do not listen! If you are a bit gutsy, the best time for leveraging might come pretty soon. Yeah, I think we should all borrow money to invest if things continue to go down this way. Why is that? Here are a few reasons:

Markets will not go down forever

Right now, markets are being influenced by the subprime lender crisis (Keep in mind that I called this one back in April!). As we are living in a bull market for several years, most stocks are at their highest peak, everybody thinks this is the end of the party and the bear will not take time to show up. I could not disagree more on this statement.

First, Sub-prime lender crisis is mainly affecting the US market. The impact is being reflected across the world but mostly because people are in panic mode. Do you see any major sub-prime lender in financial difficulties in Canada right now? We presently show the best economic stats since the pas 30 years. Our economy is driven by the prices of resources but the world is craving for it!

Second, the BRIC should not slow down their economic progression. It is especially the case for India and China. Buildings are being built faster than I type my posts! I recently saw some stats about India and it is ridiculous to see the amount of engineers and doctors they are producing years after years. I do not think they will stop buying our resources any time soon.

Third, technical analysis shows that the bull market is not over yet. We are just living another market correction. This is exactly the time for a buy and hold strategy.

What if I am wrong? (after all, if I knew everything, I would be writing this blog from my Condo in Panama City!)

If we are really entering into a bear market and the price of stocks will continue falling, it is still the best time to leverage. Why is that? It is simply because you need to test your mental capacity of supporting potential losses. Leveraging strategies were doing pretty good for the past 5 years as the market was always going up. The tough part about leverage is when things turn sour.

If you borrow a small amount to invest right now, you will have a great chance to practice your mental toughness against the market. Most people lose money on the street as they buy and sell at the wrong time. They buy high and sell low.

Then, if you borrow to invest now, two things could happen. The first one will produce immediate profit as markets were going into a small correction. The second possibility is a bear market. You will then have the opportunity to practice your tolerance against losing stocks.

The key here is to invest an amount that will not kill your monthly cash flow so you can keep up with the investment loan payments and that you do not expect to need this money anytime soon. Then, you can leave your investments in the market and wait until you make good profit. A small amount such as 10K-25K should be considered a good starting point. Another possibility is to start a Smith Manoeuvre. Please make sure to validate your strategy with a professional before you go ahead with.

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Comments

Given that the markets seemed to have reached their resistance point the past couple of days do you think that the dip may be behind us and it is too late to get in?

Also, what sectors/areas/stocks do you think were beaten up unjustly and are poised for a rebound?

by: The Financial Blogger | August 20th, 2007 (10:40 am)

911,
I think the dip is about to be done. This might not be the best time ever to get in but reaching the very bottom of a correction (or a bear market) is pretty tough. I guess any time one stock you are planning to buy drops by 10%, it is the time to buy some.

I personally think that banks were penalized without real reasons. Most of them will reach their year end objectives and they all lost about 15% since last April.

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