# Margin Account Strategy



## GOB (Feb 15, 2011)

What does everyone think of having a margin account (Questrade offers 3:1) filled with solid, stable dividend-growth companies? I'm thinking of adding some banks, utilities, insurance companies (and perhaps some index ETFs) into my margin account and just DRIPing the dividends. This would provide a leverage-adjusted 10-12% return just from the dividend growth alone, without any price appreciation. The margin could also allow those of us who don't have tons of cash to purchase enough shares to write covered calls during flat/bearish markets and gradually lower the overall cost basis. I think this could work with a view for the long term and provided you are happy to let the money/stocks sit there for years. 

P.S. I am well aware of the dangers of trading on margin, which is why I am thinking of a safer and more reasonable approach to doing it. 

Thoughts?


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## Jungle (Feb 17, 2010)

Main thing is when the prices fall, they will start margin calls and sell your stocks to cover. Very dangerous thing to do. 

Also, the interest rates for Questrate are not that good (and they are going to rise). 

Have a look at Interactive Brokers. I Believe their margin rates are about 2.5%right now and you can deduct that cost on your taxes if the stocks pay dividends. 

I would keep your margin lending very conservative incase markets drop.


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## m3s (Apr 3, 2010)

Yes, I use Questrade for registered but I moved to IB for the margin account. I only hold Cdn dividends in it and I don't come close to maxed the margin. IB is far cheaper and superior to Questrade but they don't offer registered, otherwise I would move everything to IB. There is a min $10/month fee if you don't spend that in trades


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## MoreMiles (Apr 20, 2011)

I think most people max out their cash so they really cannot do dollar-cost-averaging in a time of crash. I think a better way to use margin is reserve that as a safety net to buy extra in such event. So why max out your buying power when you don't have to?


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## GOB (Feb 15, 2011)

Good points. I do think it's important not to use all your cash and to always have some in your account both to cover declines in your positions and for buying opportunities. I will look into IB


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## KaeJS (Sep 28, 2010)

I use my margin too much.

Sometimes it is good, but it also hurts like hell.


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## GOB (Feb 15, 2011)

On a related note, how does taxation on interest on investment loans and dividends work? It is purely based on your marginal rate or is there a laddering structure? Will I be able to partially take advantage of the negative dividend tax rates if my income is beyond those brackets?


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## Homerhomer (Oct 18, 2010)

Personally I would rather use line of credit before I ever touch the margin, nobody will call me out on that and I can withstand down markets if I believe in the securities held.


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## Abha (Jun 26, 2011)

Homerhomer said:


> Personally I would rather use line of credit before I ever touch the margin, nobody will call me out on that and I can withstand down markets if I believe in the securities held.


Smartest strategy by far. You control the fate and not the lender.

Everytime I think of using Margin I remember the story of Arthur McClendon who is the CEO of Chesapeake Energy.

http://blogs.wsj.com/wealth/2008/10/16/two-words-the-rich-fear-most-margin-call/


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## MoreMiles (Apr 20, 2011)

Also, when you buy stocks on margin, your broker has the right to lend out those stocks to a short-seller. That will then lead to a drop in stock price.. so I don't want anyone to short my stocks! So I don't buy on margin.


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## andrewf (Mar 1, 2010)

Homerhomer said:


> Personally I would rather use line of credit before I ever touch the margin, nobody will call me out on that and I can withstand down markets if I believe in the securities held.


LOCs are callable loans too.


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## Abha (Jun 26, 2011)

andrewf said:


> LOCs are callable loans too.


Very rare and extremely rare if you keep making payments


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## Homerhomer (Oct 18, 2010)

andrewf said:


> LOCs are callable loans too.


Didn't know that. 

What are the odds of LOC being called in comparison to margin, does 1 LOC call for every 1000 margin calls sounds about right (that's obviously assuming minimym payments are made)?

If that's the case my approach is still better (even if the ratio is 1:100 or a bit lower ;-).


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## DavidJD (Sep 27, 2009)

I have done extremely well borrowing to invest. So well I have to be mindful of not having a teflon strategy, one that could crap out suddenly.

I use an LOC (better rate than margin) from a dedicated account so it is easy to calculate and claim interest charges come tax time. 

It is all about the spread. If your rate being charged (not considering it as a write off) is lower than the yield, you are enjoying the spread. If you bought at a 52-week high or it has a risky dividend, you are less comfy.

In one case I borrowed to buy at $12.10 with a yield of 13%. My interest charges were/are 3.5% (which can be written off so likely less than 3%) and to make it even sweeter, I am on DRIP which provides a -3% discount off the average price.

To make my savings a bit more disciplined, I have a weekly amount automatically withdrawn to go on the LOC ($150). This wittles away at the principle borrowed.

Since then, the stock has hovered around $22 and I have enjoyed at least a 16 months of DRIP. After 4-5 more months of DRIPing I am going to sell as many as I need to, to clear up the amount left on my LOC.

If borrowing rates jump even 2-3% this strategy would not be worth the risks in my opinion. Also I bought ALL ONE stock, which is not prudent from a diversified point of view. 

Still enjoying this move.


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## Causalien (Apr 4, 2009)

If you haven't been trading for more than 5 years. Don't use margin. For the sake of stability of the market. Do it when you actually have the experience. 

I would go as far to state also that before you fully understand bonds, preferred, stocks, options, futures and future contracts, you won't be able to make the right decision on where to deploy the margin at the right market condition.


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## m3s (Apr 3, 2010)

DavidJD said:


> I use an LOC (better rate than margin) from a dedicated account so it is easy to calculate and claim interest charges come tax time.
> 
> My interest charges were/are 3.5% (which can be written off so likely less than 3%) and to make it even sweeter, I am on DRIP which provides a -3% discount off the average price.
> 
> ...


I debated on using LOC instead of margin. I found IB had better rates than any LOC (lower than 3.5%) and it is efficient because I borrow simultaneously when I need if and pay it off simultaneously when I don't want to hold stocks etc. As far as the paperwork, I'm not sure. I'd read that margin acct is setup for this purpose so it will be fine


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## GOB (Feb 15, 2011)

Thanks for alerting me to IB. That is a great rate and really makes my decision easier. I'm fairly confident I can beat a 2.5% rate pre-deduction with some stable dividend-growth companies.


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## Jungle (Feb 17, 2010)

We just converted our investment loan (HELOC) to a 1 year term, 30 year mortgage, 2.64% rate. Scotia is still offering this.


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## GOB (Feb 15, 2011)

Seems IB doesn't offer DRIPs so now I have to decide between a DRIP with questrade or regular dividends with IB. Might go with IB for the awesome interest rate and commissions are just $1 if I read correctly?? It will also avoid the hassle of calculating ACB for tax time.


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## m3s (Apr 3, 2010)

Yea $1 but min $10/month. The rate is far more important than DRIP imo. I don't like DRIP because I prefer to just pile all the dividends together to buy something else I see as a good price


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## andrewf (Mar 1, 2010)

DRIPs are alright, but hardly worth paying double the margin rate for.


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## cannon_fodder (Apr 3, 2009)

No. IB is $1 per 100 shares. Buy 10,000 shares of something and it costs a whopping $100. 

I also think it's more helpful to point out the pros and cons of using margin rather than blanket statements with our personal biases mixed in. There are conservative investors and aggressive investors. And any individuals style may not be aligned with the OP. But there are risks and rewards which are well documented when using margin. Supplemented by relating actual personal experiences can inspire or sober up the OP.

You'll find stories of people who have realized additional profits through the use of margin. You'll also find stories of those who've suffered additional losses and would have been better off without it. What you may hear is someone lament the use of margin because they used it and came out worse. What you won't hear is someone who never tried it extolling its virtues. But some who have never used it will offer an opinion as to why no one should use it. 

It's your money so you better be Prepared to live with the results and not look back at what some anonymous posters said as the reason for you to cast aside critical thinking.


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## GOB (Feb 15, 2011)

cannon_fodder said:


> No. IB is $1 per 100 shares. Buy 10,000 shares of something and it costs a whopping $100.
> 
> I also think it's more helpful to point out the pros and cons of using margin rather than blanket statements with our personal biases mixed in. There are conservative investors and aggressive investors. And any individuals style may not be aligned with the OP. But there are risks and rewards which are well documented when using margin. Supplemented by relating actual personal experiences can inspire or sober up the OP.
> 
> ...


Thanks for the post. I am definitely aware of the caution needed to trade successfully and safely on margin. I believe IB's maximum commission is $5 or $10


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## andrewf (Mar 1, 2010)

I'd also say that if you have any bond holdings and you're thinking about using margin, you should probably think about it a little longer.


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## andrewf (Mar 1, 2010)

IB commission structure is $0.005/share, minimum $1 per trade, maximum 0.5% value for their flat rate commissions on US stocks. So, 10,000 shares would cost you $50. If that were 10,000 shares of POT, I'm not sure it really matters, since the cost is a tiny fraction of the bid-ask spread. If you're trading penny stocks, the 0.5% maximum kicks in.


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## cannon_fodder (Apr 3, 2009)

If you can show me how to limit my trades at IB Canada to $50 I'll pay you $50. I've had many many trades where the commissions were over $100. So if I have setup my account incorrectly I want to change that ASAP!


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## Dmoney (Apr 28, 2011)

cannon_fodder said:


> No. IB is $1 per 100 shares. Buy 10,000 shares of something and it costs a whopping $100.


If you're buying 10,000 shares, 100$ is most likely a very small % of the trade. I know, paying 10$ at Questrade beats the hell out of 100$ at IB, but if you're getting 2.5% interest on margin as compared to 4.5%, and you're dealing with amounts that large (10K shares, assuming a modest price per share of 10$, you're talking $100K), the interest savings will far outdo the commission difference. Assuming 100K on margin for the year, you're paying 2K extra at Questrade. You'd have to make 22 trades to make Questrade the better deal. If the share price is more than 10$ we're talking even more significant savings.


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## andrewf (Mar 1, 2010)

That's also assuming there is no difference in quality of execution.


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## cannon_fodder (Apr 3, 2009)

Dmoney said:


> If you're buying 10,000 shares, 100$ is most likely a very small % of the trade. I know, paying 10$ at Questrade beats the hell out of 100$ at IB, but if you're getting 2.5% interest on margin as compared to 4.5%, and you're dealing with amounts that large (10K shares, assuming a modest price per share of 10$, you're talking $100K), the interest savings will far outdo the commission difference. Assuming 100K on margin for the year, you're paying 2K extra at Questrade. You'd have to make 22 trades to make Questrade the better deal. If the share price is more than 10$ we're talking even more significant savings.


The margin interest is exactly why I chose IB over any other discount broker.

And, when it comes to finding shares to short, I hear complaints from other traders/investors that they can't find them at their broker, but it's been relatively easy at IB.

They do give examples of how you _potentially_ can save commissions using an unbundled approach. But the examples show cases where you can save as well as where it gets more expensive.

And I have never traded in the millions of shares - plus, their examples are for the US. And I'm completely ignorant if my trades "add" or "remove" liquidity.

So I went with the simple bundled approach. I've spent almost $7k in commissions already with them. And they don't even send me a birthday card.


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## m3s (Apr 3, 2010)

cannon_fodder said:


> And I have never traded in the millions of shares - plus, their examples are for the US. And I'm completely ignorant if my trades "add" or "remove" liquidity.
> 
> So I went with the simple bundled approach. I've spent almost $7k in commissions already with them. And they don't even send me a birthday card.



Adding liquidity is like putting in a limit order that won't get executed unless the market value hits your limit. Putting in market orders or limit orders that get executed immediately are removing liquidity.

There are different options for the commissions but I don't have my device to tell you what they are. Just log into acct management. Paying per share is cheaper for me but surely not for you


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## Mockingbird (Apr 29, 2009)

Aside from the leverage, beauty of the margin account is the ability to take short positions.

Having a margin account means you need to understand the risk and the effects of drawdown have on your overall portfolio on any given moment. You must track your maintenance requirement, so you can act accordingly before the dreaded margin call. If not, you have no business even considering it - IMHO.

Due to the nature of the margin accounts, they are more effective for the term short term traders and/or the experienced investors with deep pocket.

My 2c.

MB


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## Mockingbird (Apr 29, 2009)

cannon_fodder said:


> .... I've spent almost $7k in commissions already with them. And they don't even send me a birthday card.


Don't feel bad. I don't get it either. 
If you are moving large sizes, stick to the per ticket pricing offered by other brokerages.

MB


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## cannon_fodder (Apr 3, 2009)

mode3sour said:


> Adding liquidity is like putting in a limit order that won't get executed unless the market value hits your limit. Putting in market orders or limit orders that get executed immediately are removing liquidity.
> 
> There are different options for the commissions but I don't have my device to tell you what they are. Just log into acct management. Paying per share is cheaper for me but surely not for you


So if a stock is at $4.70 bid / $4.71 ask and I put in a limit order to buy at $4.68 I'm adding liquidity? That has the potential to reduce my commissions but only if I know what the TSX charges for fees. Their examples don't show the TSX.


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## Mockingbird (Apr 29, 2009)

cannon_fodder said:


> So if a stock is at $4.70 bid / $4.71 ask and I put in a limit order to buy at $4.68 I'm adding liquidity? That has the potential to reduce my commissions but only if I know what the TSX charges for fees. Their examples don't show the TSX.


Yes, you are adding liquidity. In another words, marketable orders are removing liquidity and non-marketable orders are adding liquidity.

For IB, "Flat Rate" pricing structure includes all fees such as commission, exchange, clearing, and regulatory fees.
Rebates only apply on the "Cost Plus" pricing structure where you can actually control expenses; however, you have to pay all the associated fees.


FWIW, here is IB's "Flat Rate" fee structure.

Volume <= 300,000 shares per month, commission is *CAD $0.008/share*. 

*TSX and TSX Venture Exchange Fees *: [Type],[Remove Liquidity],[Add Liquidity]

Stocks trading <1.00 CAD, CAD 0.0002/share, (CAD 0.0001)/share

Stocks trading >=1.00 CAD, CAD 0.0035/share, (CAD 0.0031)/share

Open, Close or Reopen auctions – Toronto Only (Max CAD$30), CAD 0.003/share, CAD 0.003/share

Auctions – Venture Only, CAD 0.0012/share, CAD 0.0012/share

Extended Trading – Toronto Only, CAD 0.001/share, CAD 0.001/share
Note: Different fees for trading thru ATS, such as ALPHA, CHI-X, Omega, and PURE.

*Clearing Fees: *

TSE, PURE, Omega ECN, CHI-X ECN = CAD0.00017 per share/capped at CAD 2.00 per order

VENTURE = CAD0.00010 per share/capped at CAD 2.00 per order

*Regulatory Fee: *

CAD 0.00011 per share/capped at CAD 3.30 per trade (not per order)

Hope it helps.

MB


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## cannon_fodder (Apr 3, 2009)

Mockingbird said:


> Aside from the leverage, beauty of the margin account is the ability to take short positions.
> 
> Having a margin account means you need to understand the risk and the effects of drawdown have on your overall portfolio on any given moment. You must track your maintenance requirement, so you can act accordingly before the dreaded margin call. If not, you have no business even considering it - IMHO.
> 
> ...


At the sake of repeating myself (and threadjacking) how do YOU handle the tax treatment of profits made by shorting? 
I'm still having a difficult time convincing myself that CRA might decide to treat profits from shorting as on capital account. That's in spite of one person who actually was told by a level 1 and level 2 CRA associate that he had to resubmit his income tax forms and change the treatment from on income to capital account. And I've had a CRA auditor (off the record) tell me "Short selling of Canadian securities can be treated as capital transactions. For an explanation of what factors determine whether a transaction is a capital gain or regular income, see Interpretation Bulletin IT-479R paragraphs 9 to 21. "

Of course, paragraph 18 stands out like a sore thumb.

Now, I've read IT-479R over and over and I can't see how it could be treated as a capital gain. No matter how much I'd like it to be.


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## Mockingbird (Apr 29, 2009)

I file them as an income. 
I hear you on the paragraph 18; however, CRA could allow them as a capital account if you file an election made under s.39(4). You need to check with your own accountant to see if this applies to you. Also, I have a feeling that there might be a case for those who short to hedge (or lock in profit) their existing long positions. Perhaps someone has an opinion on this. 

Here's an excerpt from the Globe and Mail written by Tim Cestnick.
"Any profits or losses that you generate from short-selling a stock will generally be considered business income or losses. It only makes sense. You see, a short sale doesn’t provide the opportunity for any “fruit from the tree” such as interest, dividends, royalties, or rents. No fruit? Then these securities are more akin to an “adventure in the nature of trade” and will be treated as income."

According to the Tax Resource Blog,
"As mentioned above, gains and losses from short selling stocks will be treated as straight income as opposed to capital gains or losses."

From Taxtips.ca,
"The gain or loss on the short sale of shares is considered to be an income gain or loss, unless an election has been made under s.39(4) to treat them as capital transactions. ...any broker's fees, rental fees and compensatory dividends paid by the short seller between the short sale and the close out will reduce the profit or increase the loss."

MB


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## cannon_fodder (Apr 3, 2009)

TYVM, MB. Yes, T123. It's interesting that I've read most accountants would counsel against filing T123 because of the permanency of it. For me, I'm not expecting to work much longer so the ability to write off losses (which I hope don't exceed profits in any year) would not have a lot of value anyway.

Interesting about the "fruits from the tree" stance. There are many (most?) stocks which don't provide fruit. I'm not aware of futures contracts providing fruit yet from what I've read, they can be treated as on capital account (as long as you are consistent).

I'm contemplating refiling the last 3 years of tax returns for another reason and take the opportunity to file T123 at the same time. And, I think that having an accountant do it for me just might provide a benefit should CRA come calling.


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## Gabriel C (Jun 3, 2015)

So let's say I have 100 000$ in a margin account, 100% of it is in stocks.
I, therefore, have a buying power of 70 000$ (best case scenario).

If I want to buy 10 000$ worth of a new stock, can I buy it with 10 000$ of the margin or am I required to put at least 3000$ of new money in the account and take 7000$ on margin ? 

Thanks !


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## hboy43 (May 10, 2009)

You are all set to buy the stock in your example without adding any new money.


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## Pluto (Sep 12, 2013)

Gabriel C said:


> So let's say I have 100 000$ in a margin account, 100% of it is in stocks.
> I, therefore, have a buying power of 70 000$ (best case scenario).
> 
> If I want to buy 10 000$ worth of a new stock, can I buy it with 10 000$ of the margin or am I required to put at least 3000$ of new money in the account and take 7000$ on margin ?
> ...


You are good to go with no new money added. Just keep in mind if your equity goes down, the amount of margin permitted shrinks rapidly. If you get a margin call they will show up at your door wearing trench coats and wielding baseball bats....so to speak. 

On the other hand if your stocks go up your equity increases and so does the margin available.


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## Gabriel C (Jun 3, 2015)

*105*

Thanks to both of you.

I found it difficult to learn about the margin account mechanism because exemples used everywhere are for new accounts with no money in it.
The best explanation I found is an article by interactive brokers (sorry, can't post the link as I am a newbe...)

Wow, it's almost scary how much money you can borrow.


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## The_Tosser (Oct 20, 2015)

Gabriel C said:


> Wow, it's almost scary how much money you can borrow.


scary huh?

this might be the IB example you were referencing.

https://www.interactivebrokers.com/en/index.php?f=marginnew&p=overview3


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## lonewolf (Jun 12, 2012)

cannon_fodder said:


> So if a stock is at $4.70 bid / $4.71 ask and I put in a limit order to buy at $4.68 I'm adding liquidity? That has the potential to reduce my commissions but only if I know what the TSX charges for fees. Their examples don't show the TSX.



You lose money on a trade after buy & sell is completed you add liquidity to market 

You make money on a trade after buy & sell completed you take liquidity out of the market


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## lonewolf (Jun 12, 2012)

Trading the market beta slippage, commission, bid ask spread, slippage all working against you is adding interest from margin really a good idea ?


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## DavidW (May 27, 2016)

lonewolf said:


> Trading the market beta slippage, commission, bid ask spread, slippage all working against you is adding interest from margin really a good idea ?


The growing monthly margin interest in bull markets on one side of the account is why I tend to do most of my selling on the other side, the US side, as 'flight to safety' where the stronger currency sometimes helps. This leads to a growing cash balance on that side which requires a resumption of the bull market to utilize or moving the cash back to the other side at some point to pay down margin debt. This means I do less selling of my Canadian stocks, regardless of which side I sell on I always want to know how much margin interest coverage I have with those Canadian stocks - I track this myself as there is nothing in my trading application to tell me where I stand regarding quantity and timing of incoming dividends. At any time I want to ensure the market value from both sides will cover the margin debt.

I try not to make big positions anymore as I have seen benefits to diversifying across sectors, some days these sectors are up and those ones are down and other days vice versa sort of thing. Sometimes everything is up or everything is down. I've made big capital gains with big positions, had big capital losses with big positions too. So now I'm just trying to not lose too much money at any one time when they happen and trying to rely on dividends to get the necessities taken care of. Big capital gains will mean additional taxes to be paid that will likely require some thought as how to handle - I haven't had any of those recently but unrealized gains have been aggregating the last few months. 

All the holdings in the portfolio were bought on some reasoning and my selling usually has nothing to do with the equities themselves, so deciding what to sell is usually a sacrifice. So I try not to make positions too big but to have enough I can sell have to make the sell useful but still have some left over. The way my account currently works losses come with an additional margin penalty and gains get a loan value factor penalty applied when utilized, so I don't want to carry a lot of positions in a significant loss position - I currently do have one position with a significant unrealized loss as a couple others have recovered in the last few months. This one position also has a risk of a dividend cut so I don't want to many of those stocks either and am trying to buy stronger companies even though they yield less, while maintaining a watch on my margin interest coverage.


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## james4beach (Nov 15, 2012)

> What does everyone think of having a margin account (Questrade offers 3:1) filled with solid, stable dividend-growth companies?


And what happens the next time there is a 50% decline in your "stable dividend growth stocks"? Even including dividends, XDV for example declined approx 50% in 2008.

A similar broad decline happened in the tech crash. There's nothing magic about these dividend stocks... they are just stocks and not very different from the TSX 60 index, which has declined ~ 50% twice since 2000.

Whatever leveraged strategy you're pursuing must be able to handle 50% declines. And obviously you want some margin of safety when you model risk, so *your strategy should be able to handle something like a 60% - 75% decline in your portfolio*. Additionally, there is always the possibility that brokers change margin rates on stocks. Just because they allow a certain level of margin today doesn't mean they will always allow that amount of margin.

Margin calls will always come at the worst possible time. By definition. It's because the broker suddenly decides they want loans repaid because they don't like how that security is acting.


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## james4beach (Nov 15, 2012)

cannon_fodder said:


> At the sake of repeating myself (and threadjacking) how do YOU handle the tax treatment of profits made by shorting?


CRA people have no idea how to treat short selling. People around here post excerpts from literature but I know several people who have inquired with CRA and their accountants and never gotten a clear answer.

My accountant advised me to keep it simple and file them on the capital account, for positions that I open & close within the same year. That's what I've been doing for many years -- always the capital account.


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## DavidW (May 27, 2016)

james4beach said:


> CRA people have no idea how to treat short selling. People around here post excerpts from literature but I know several people who have inquired with CRA and their accountants and never gotten a clear answer.
> 
> My accountant advised me to keep it simple and file them on the capital account, for positions that I open & close within the same year. That's what I've been doing for many years -- always the capital account.


I have only shorted a few times and am not that interested in shorting, the last time I identified a short opportunity I wasn't able to borrow shares. 

For the few trades I did do I tracked the ACB for the capital gains/losses in my spreadsheet much the same way as for my long positions, except that I swapped the location of the headings in the acquisitions and dispositions headings groups. So I treated them as capital gains or losses.


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## DavidW (May 27, 2016)

james4beach said:


> And what happens the next time there is a 50% decline in your "stable dividend growth stocks"? Even including dividends, XDV for example declined approx 50% in 2008.
> 
> A similar broad decline happened in the tech crash. There's nothing magic about these dividend stocks... they are just stocks and not very different from the TSX 60 index, which has declined ~ 50% twice since 2000.
> 
> ...


The last few months I have been keeping my margin so thin trying to accumulate and diversify that a margin call situation developing is a weekly thing. It helps that I am not working and can watch how the markets are behaving and decide if I want to preempt the margin notice and sell that day, or wait and see if a rebound the next day will postpone a notice. There is, has been for me, a lag where the account margin goes negative after the close, is negative at the following open and then around 11:00am my time may generate a notice saying I need to fix my margin position by 1:00pm E.S.T. the following day.

Selling is not a bad thing. For a significant downturn like you describe yes the account would get sold down a great deal. I have a place where I can create a cash pile to 1) cover a few bill payment for a month or two, 2) buy back positions when the decline is over. So yes, if you are not willing to watch things and take action you should not leverage up as far as it is possible to. 

The debt in the account needs to be looked after, you don't want to have more debt in there than cash and equity. EDIT: "My preference is" that the account is always paying for itself.


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## Pluto (Sep 12, 2013)

Speaking of Margin debt strategies, I make liberal use of it when others are making comparatively little use of it. 
Total margin debt bears watching. 

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX

I won't be using much margin for a while.


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## humble_pie (Jun 7, 2009)

DavidW said:


> The last few months I have been keeping my margin so thin trying to accumulate and diversify that a margin call situation developing is a weekly thing. It helps that I am not working and can watch how the markets are behaving and decide if I want to preempt the margin notice and sell that day, or wait and see if a rebound the next day will postpone a notice. There is, has been for me, a lag where the account margin goes negative after the close, is negative at the following open and then around 11:00am my time may generate a notice saying I need to fix my margin position by 1:00pm E.S.T. the following day.
> 
> Selling is not a bad thing. For a significant downturn like you describe yes the account would get sold down a great deal. I have a place where I can create a cash pile to 1) cover a few bill payment for a month or two, 2) buy back positions when the decline is over. So yes, if you are not willing to watch things and take action you should not leverage up as far as it is possible to.
> 
> The debt in the account needs to be looked after, you don't want to have more debt in there than cash and equity. EDIT: "My preference is" that the account is always paying for itself.




oh dear. The margin strategy davidW is describing in the above post & in several prior posts is one of desperation. In fact, it's not even a strategy.

it's skipping & hopping & hoping & fleeing & praying that positive dividends are going to accumulate faster than the negative combo of heavy broker margin interest charges plus the capital losses he's sustaining from bad stock picks.

it's suicide. Not even suicide by one's own choice. It's suicide on the instalment plan, with the broker calling the tune.

don't do this. Or rather, only do this if you wish to spend the rest of your life on earth & the rest of your investment savings extinguishing fort mcMurray style wildfires.


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## lonewolf (Jun 12, 2012)

james4beach said:


> And what happens the next time there is a 50% decline in your "stable dividend growth stocks"? Even including dividends, XDV for example declined approx 50% in 2008.
> 
> A similar broad decline happened in the tech crash. There's nothing magic about these dividend stocks... they are just stocks and not very different from the TSX 60 index, which has declined ~ 50% twice since 2000.
> 
> ...


 In 1929 could buy stocks 10% down. The fed raised interest rates to crash the stock market to punish the banks that broke away from the fed.

Margin rates were raised 

1932 stocks 89% lower


When the hunt brothers were trying to corner the silver market the exchange decided to only take sell orders no buy orders were taken the price of silver crashed. 

Never know perhaps no holding stocks on margin could happen when your on margin. Your playing against some of the most corrupt powerful men in the world.


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## lonewolf (Jun 12, 2012)

buying stocks on margin does this cross the line from speculating to gambling ????


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## hboy43 (May 10, 2009)

lonewolf said:


> buying stocks on margin does this cross the line from speculating to gambling ????


People can call it whatever they like to suit themselves, maybe ...

gambling: $2.2M stocks 20 positions mostly blue chip, debt $0.6M, house not in To or Van $0.2M for net worth $1.8M
entirely sensible: $0 stocks, debt $0.6M, single instance of a house in To or Van $1M for net worth $0.4M

First category has a membership (that is roughly the scenario) of a likely a few hundred to a few thousand people in Canada, second category likely mid to high hundreds of thousands, so we know how people have voted with their wallets anyhow.

Like I said, call it what you like, but those are not the labels I would use.

hboy43


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## james4beach (Nov 15, 2012)

I personally don't see much of a difference between stock "investing" and speculating. What some people call long-term investing, I call "speculating on a long lasting bull market."

I agree that once you stretch out the horizon long enough (like 30 years) you're pretty much guaranteed to be OK in a stock index, but not everyone is looking out that long. Many people posting here have horizons like 10-15 years and are betting their entire retirement on the continuation of a bull market... that's a huge/risky speculation, in my eyes.

Just look at threads like this one, where people are *100% in equities in year 8 of a bull run!*

The fact that we've _mostly_ been in bull mode since 1982 has caused people to forget that bear markets, historically speaking, are quite common.


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## lonewolf (Jun 12, 2012)

Sine inception of the DJI the amount of money looking for a home for retirement savings has never seen a 30 year period of down trend. Have to take the math one step further then Newton to that of cycles. Demographics & population growth can not always support. The millions of years that man walked on earth before DJI what percentage of the time did stocks come out ahead over 30 yr time frame ?


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## james4beach (Nov 15, 2012)

I don't want to be unfair to stocks though. If your horizon really is long enough ... 30 years, 40 years, etc... the best returns come from the stock index.


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## OnlyMyOpinion (Sep 1, 2013)

James, I know you know this, but a distinction in my mind is that I consider myself to be investing in companies, not the market. 
If the company is successful and is able to grow in value over the years (there are many ways to do that), then shareholders will see their investment grow as well. Of course short term growth prospects might be affected by management decisions, gov't regs, competition, the Cdn$, interest rates, global or local economic conditions, etc. But over the longer term the company grows. 
I do have to buy in the market and stock prices are affected by those same issues and by other macro-events, and by irrational investor sentiment, and buyers/sellers who are there to profit from short term market movements. 
My big miscall was TA, most others have been able to grow in value to varying degrees, so I remain invested.


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