Wednesday, January 28, 2015

Buying stocks on credit

Easy credit, a German credit provider

Lately I have seen a disturbing trend among some financial bloggers in Sweden, they take credit on their stocks to buy more stocks. To me this is a very clear no go and especially at moments when many stock markets are on all time highs.

Yes, even when the stock markets are on all time highs there will always be companies that are cheap but when the stock market drops by 30% then all the companies drop by 30%. That means that the stocks that you used to take the credit on will drop by 30% and so does the company that you bought with that credit.

The stock market is dangerous in the short run and wonderful in the long run. A credit is often the opposite... wonderful in the short run but devastating in the long run.

Back in 2009 in the middle of the crisis then I understand if people took a credit to buy stocks but I doubt that many people did that. I also doubt many banks would have offered credit on stocks so the only thing to use for the credit leverage would have been land, houses or apartments.
To risk your house for buying stocks in the middle of a crisis then you need an unusual way of thinking which, in my book, falls under the contrarian way of thinking.

Personally I am also sitting with debt on my shoulders which one can, and to a certain extent also should, say that I use as leverage for buying stocks for as long as I have those debts. I would love to pay them all off but due to the conditions of them as well as the reason for how they were created it makes little sense to pay them off directly and for that reason I will keep them as leverage for the time being.

I would never recommend anyone to take credits for buying stocks but if one must do so then please do it when the stock markets have crashed and not when it they are on an all time high as they are now!

As a small side note... Until I get a better feeling for the time needed for my economy studies I have decided to bring down the publication rate to one new publication every two days.

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