Investment Strategy Part 2

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."
- Mark Twain

This is an update to my previous investment strategy article and a discussion about how I've used debt to my advantage. A reminder, I am thinking out loud here, not advising anyone to do anything, this is for educational purposes only.

I have found over the past 12 months that it is extremely useful to have debt on hand. I have used debt effectively to purchase stock at bargain basement prices, and then used it again to park capital during times of inflated stock prices. Debt guarantees a healthy return for the money used to pay it off. At the same time, whenever you use cash to pay down a loan used to buy shares, you are in essence, buying the shares at the price you paid using the debt. Win-Win. Critics would argue that this brings along more risk than necessary, or that it only works if your shares appreciate in value. This is turned on it's head when you have a killer asset to purchase and extreme investor testicular fortitude. Some of the shares I purchased using debt swiftly lost 30% of their value following their buying, troubling for many, not for me. I doubled down and borrowed more money to load up, already being close to 100% invested in this one asset. With patience and high conviction I waited whilst continually accumulating shares. Eventually, a massive breakout occurred where the shares soared, doubling within less than 3 months. As mentioned earlier, this was a great time to start paying down the debt, and that is what I did. Another approach would be to resume purchasing, however, that would come later for me. When I had paid a significant amount of my debt down, the shares came crashing back down. I wasn't ready with piles of cash but I swiftly shifted from paying down debt to purchasing again. This has played out a few times now, switching from debt consolidation to share accumulation. This has protected me from purchasing shares at inflated prices and brought my average purchase price down.

In my situation I think it is appropriate to have around 10% leverage. Now that I have nearly exhausted my debt reserves, I will seek to acquire a new loan to purchase shares that I think are extremely cheap (not TSLA, for once). Due to my love of investing in extremely volatile assets, this will probably be a very bumpy ride. It's not usually easy to catch a falling knife as they say, so the chances that I take out a loan and buy the perfect bottom of the dip are low. Knowing that, when you are cash poor and asset hungry, the money has to come from somewhere. With this new found utility of debt and the flexibility it provides, I am inclined to do it again.

Why not get a margin loan? I believe, as Michael Saylor says, "Volatility is Vitality." I believe it weeds out weak investors and makes room for great ones. Due to these beliefs, I have seen and will continue to see extreme volatility in my portfolio. Ergo, margin is not for me as I fear being stopped out. Warren Buffet's rule number one is: Do not lose money. Getting margin called while I'm asleep would be in breech of this rule, not an option. As a side note, speaking of options, if I were to risk breaking rule number one, it would definitely be in the options market, though I have not indulged in it and do not plan on doing so in the near future. I also don't plan on having enough free capital for them, so if I did buy them, it would have to be on borrowed money, raising the risk profile greatly. This is something I once considered, but eventually went back to my roots, remembering how all my short term predictions are worth about as much as a sole in an old shoe. I'm still just about the good ol' buy and hold, just with a little help from the bank these days.

Thanks for reading, hope you learnt something.