Why would you buy on credit? (micro caps & stop losses)

[markrmau]

I notice a lot of threads talking about margin loans and credit facilities....

I have a suggestion: don't buy on credit and get a free GSL

Here is the rationale:

You use credit facilities (margin loan, LOC, drawdown on house loan...) to buy large caps which have relatively low volatility.....for the sole purpose of increasing the relative volatility.

However, microcaps already have an equivalently high volatility (equivalent to larger comapny, + margin gain).

However, with a micro cap, you will never go negative - at worst you lose the lot. So it is a guaranteed stop loss in a way. Admittedly, I am talking here of the dangers of an 87 style crash. With margin or LOC, you could possibly loose your shirt. With microcaps and no leverage, you can fight another day.

In addition, there are greater chances of price anomalies in the microcap stock universe...

I just wanted to throw this in for discussion of alternative strategies. Obviously tech trader is an example of the advantages of margin on the majors.

 

[tech/a]

Re: Why would you buy on credit?

Now there is lateral thinking!

Cant agree more. There are examples almost on a weekly basis of gains of 100% or more in micro's---I'll use stocks to 50c as my definition but could well be below 20c.

If you take away the $$s and look at the return for $ invested then its hard to go past these.

This is one area where I'm working on.

 

[canny]

Re: Why would you buy on credit?

tech/a - you're good at TA of course, and looking for the 'next microcap to run' - could you cast your eye over MKY and see what you think of it?
To me, it looks like we're about to see a breakout on TA.

I like the chart - and like the new management - but don't consider myself technically expert.

Now if I could see 'runners in the making' -(and I usually miss those 10 baggers, I must admit!!) I'd be quite happy to go into debt ot grab some for a trade.

 

[nioka]

Re: Why would you buy on credit?

tech/a - you're good at TA of course, and looking for the 'next microcap to run' - could you cast your eye over MKY and see what you think of it?
To me, it looks like we're about to see a breakout on TA.

I like the chart - and like the new management - but don't consider myself technically expert.

Now if I could see 'runners in the making' -(and I usually miss those 10 baggers, I must admit!!) I'd be quite happy to go into debt ot grab some for a trade.

I am interested in techs response. From my observation I would ask why the directors have sold so many shares. If they dont like it why would you?

 

[tech/a]

Re: Why would you buy on credit?

Its not one I would be trading.
I'm not licienced to give advice but this is my technical opinion for interest sake..

 

[wayneL]

Re: Why would you buy on credit?

I notice a lot of threads talking about margin loans and credit facilities....

I have a suggestion: don't buy on credit and get a free GSL

Here is the rationale:

You use credit facilities (margin loan, LOC, drawdown on house loan...) to buy large caps which have relatively low volatility.....for the sole purpose of increasing the relative volatility.

However, microcaps already have an equivalently high volatility (equivalent to larger comapny, + margin gain).

However, with a micro cap, you will never go negative - at worst you loose the lot. So it is a guaranteed stop loss in a way. Admittedly, I am talking here of the dangers of an 87 style crash. With margin or LOC, you could possibly loose your shirt. With microcaps and no leverage, you can fight another day.

In addition, there are greater chances of price anomalies in the microcap stock universe...

I just wanted to throw this in for discussion of alternative strategies. Obviously tech trader is an example of the advantages of margin on the majors.

I agree with this.

But be aware there will come a time when these microcaps become very choppy and/ or deathly quiet *when* everybody loses interest in them. Has happened before and will happen again.

It's not a bad idea to keep both options open IMO

 

[markrmau]

Re: Why would you buy on credit?

But be aware there will come a time when these microcaps become very choppy and/ or deathly quiet *when* everybody loses interest in them. Has happened before and will happen again.

Thanks for the comments everyone.

I didn't even consider that possibility Wayne - I am so blinded by this bull market where everything seems to explode on the slightest bit of good news. I can see that this wouldn't happen if we were 4 years into a bear market...

Tech's method would get around this though. Wait for the cavalry to arrive before hitching a ride.

 

[Dutchy3]

Re: Why would you buy on credit?

Brings forward a lifestyle today that I might not afford if I had 5 + lives to generate the income / cash to actually fund.

I live and work in the west and have been involved in the resources sector for the last 20 years ... when this one stops it will be the economic 'event' of my life

 

[tech/a]

Re: Why would you buy on credit?

Wayne I agree that a balance is best.

But as a singular example of many--------

 

[canny]

Re: Why would you buy on credit?

Its not one I would be trading.
I'm not licienced to give advice but this is my technical opinion for interest sake..

Love the look of the forming Elliot Wave on your second chart tech - .
I'm ignoring the old down trend as it's from earlier in the year when the company hadn't taken over Qld Uranium.
The new dierction seems to have accounted for the large rise in volume, and interest. Almost as if it wsas just a shell company that had a new deal backed in.
Will see how the story pans out. - I know some brokers are talking about it as a good story and a 10c stock on next ann.
Could conceivably be a big runner - if they have some good uranium results coming, and with the market so gung ho.