Friday, 24 October 2008

My margin loan accounts are both in "the buffer"

The Australian stock market fell another 107 points (-2.7%) today - it was the third consecutive day of losses and helped push the market down 2.5% for the week. It is also the lowest close since November 23, 2004. My two biggest margin loan accounts, with Commsec and Leveraged Equities, both got flagged as being in the "buffer" today. This means that my loan balances are above 100% of the margin value (around 70% of the market value) of my stock portfolio. If the margin utilisation gets above 105% I'll get a margin call, which would mean doing something to bring the loan balance back down to less than 100% of the margin valuation of my portfolio. I transferred $10,000 cash from my savings account into each of the margin loan accounts today, which should prevent me getting a margin call on Monday. I'm still hopeful that we're close to finding the "bottom" of this current bear market - it's already much more severe than most bear markets, and Australian p/e ratios are getting absurdly low. Also profits will undoubtedly drop significantly this financial year due to a global recession, the Australian economy is still expect to achieve positive growth. On that basis the market would appear to be in a panic and oversold, simply echoing the plunging stock markets in the US and Europe, where the economies are likely to plunge into a severe recession this year.

If the Australian market continues to drop next week I'll have to start selling off my stock portfolios to meet margin calls - I'm rapidly running out of cash to inject into these accounts!

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4 comments:

Anonymous said...

margin = :( sorry but its good on the up - cruel on the down

enoughwealth@yahoo.com said...

Yes, using gearing is a calculated risk. Unfortunately my calculations proved a bit optimistic. I used what I consider fairly modest amounts of gearing, which allowed for a 30-40% drop in the market without getting into the current situation. The current dip is just a bit more severe than usual.

With the market down as much as it is, it is also unlikely that the average return will exceed the interest cost on the margin loan for the foreseeable future. Ah well, not all investment gambles pay off.

Anonymous said...

It is fair to say that many investors and those on margin accounts are learning some pretty interesting lessons right now. The moves are unprecendented and should continue on the downside. I am expecting a rally or two soon with one last major fall where all margin accounts get cleared out. Try to protect the capital you have left. Good luck.

Gerard said...

If it makes you feel any better, October is almost over and historically (for reasons unknown) it has been the worst month of the year (at least during a bear market / peak of a bull market). This too shall pass...