As most of you already know I share all the stock holdings in my U.S. margin account under the “Portfolio” menu above. But let’s take a closer look at my holdings today.
- At the end of July I was holding 16 different stocks in my U.S. margin account.
- I gradually deposited a total of $14,000 USD into this account over the last 3 years and bought a total of $35,600 of stocks (“book value.”) This means both my risk as well as potential for reward are increased by 2.5 times (2.5 leverage)
- Last year the S&P 500 index gained 30%, and my U.S. margin account gained about 75%. Hurray for leverage!
- The shares in this account today are worth almost $50,000. The “Cash Balance” amount of -$22,301.64 you see below already has the 4.5% annual margin cost built in since interest is charged to the account every month which adds to the size of the negative cash balance. However I also receive dividend income from many stocks inside this account. So overall the net margin interest over the last three years eroded away about $700 of my portfolio value which means my actual EQUITY in the account today is worth $27,518. That’s almost 100% return on my initial $14,000 investment 😀
My Google class-A shares is showing a 14.95% loss but that’s a little misleading because I’m actually up 69% on Google so far 🙂 The tech giant did a stock split earlier this year. The market value was split between the old and new class of shares, but my book value remains attached to my original purchase.
And below are some details about my Canadian margin account for those who might be interested.
- I currently have 20 Canadian stocks, and a few option contracts in there.
- So far I have gradually deposited $23,000 of savings into it.
- Using margin I was able to purchase $52,237 of actual stocks (2.27x leverage.)
- Through market forces those stocks now have a combined value of $59,024. The cost of margin is 4.25% per year, and the net margin interest works out to be $495 total (Book Value – All Cash Deposits)
- So my total equity sits at $30,282 (Market Value of Securities – Cash Balance,) which represents a 32% return on my initial $23,000 investment. Not bad, but not as good as my U.S. margin account.
- Sorry, I don’t have any IRR numbers.
Most companies in my Canadian margin account are up 🙂 But let’s take a closer look at some of the major fails so you don’t make the same mistakes I did.
- Avigilon – This is a swing trade I started yesterday, and as I said before is pure speculation. My coworker said it would go up in the short term, but today the stock has fallen by 11% 🙁 The lesson here is don’t rely on other people for stock picks, lol. I might sell this and realize my losses if it falls below $20/share.
- BlackBerry – A phone company that seemed to have lots its way. I bought BB in 2011 when the company was facing many headwinds. This was a speculative trade that did not pay off unfortunately 🙁 With high risk technology stocks it’s important to only invest what you can afford to lose.
- Goldcorp – One of the largest gold mining companies in the world with its main office in Vancouver, BC 🙂 I’m still bullish on gold in the long run but I didn’t expect the price of bullion to be this low for so long.
- Just Energy – It sells gas and electricity. I bought it in 2011 because of the 8% dividend. But as it turns out the payout was unsustainable because the company was spending more than it earned. This is what happens when I don’t do enough research on a company’s financials.
- Tech Resources – Coal and copper mining company. Base metal prices are low so TCK.B probably probably won’t gain much in the next few years. Attractive 3.5% dividend yield, but in terms of value investing there are better options elsewhere.
These two margin accounts have allowed me the ability to own over $100,000 worth of stocks and benefit from all their capital gains and dividends, even though I’ve only had to save and invest$37,000 of my own money. Isn’t leverage great? 😀 But as a disclaimer, I was able to beat the market thus far because both U.S. and Canada the stock markets have been going up, not because I had any particular good stock picks, haha. Margin accounts allow investors to potentially increase their profits, as well as magnify their losses if their stocks go down. Understanding how margin accounts work can benefit investors in bull markets, but make sure to understand all the risks before trading a stock on margin.
Random Useless Fact:
No matter what you do, you are bound to be judged by others.