What are your thoughts on borrowing money to invest?

Discussion in 'Investing' started by MrMike, Feb 9, 2021.

  1. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    73
    Likes Received:
    43
    haha This made me think of:
    [​IMG]
    [​IMG]
     
    #121 MrMike, Aug 20, 2022
    Last edited: Aug 20, 2022
    Spud likes this.
  2. Spud

    Spud Active Member

    Joined:
    May 6, 2022
    Messages:
    197
    Likes Received:
    151
    A little humor never hurts. Enjoy watching your strategy.
     
    MrMike and TomB16 like this.
  3. Rayak

    Rayak Member

    Joined:
    Jul 30, 2022
    Messages:
    65
    Likes Received:
    40
    We'll have to agree to disagree about this. Here is what I see as VERY different: 1. if you buy a business and you are the owner, then you are either a large part of, or sometimes even all of, management for the company! 2. many people who buy a business actively WORK for the business.

    The above two factors alone make it VERY different, IMO.

    I totally understand what you are saying, but there's no way that I think that a.) being the owner/manager of a business that you actually work for and manage is somehow comparable to b.) owning a part of a business as stock holdings that you have virtually no control over.

    This conversation is occurring not because you and I don't have a good grasp of "investing vs. trading vs. gambling" but because I believe that many people are easily mislead about investing, trading, the economy, stock markets, etc. and I would hate for someone coming to these forums trying to learn about those topics to go away with the idea that "... investing in, not trading stocks ..." is "... not that different than owning your own business..." ?!?!
     
    Spud likes this.
  4. TomB16

    TomB16 Well-Known Member

    Joined:
    Jun 22, 2018
    Messages:
    3,601
    Likes Received:
    2,136
    Sure, Rayak. We massively disagree on several things. Perhaps you will get a laugh out of my perspective. :)

    Buying unknown businesses is comically dangerous to me. I work very hard to be respectful of traders and people who buy stock based on metrics other than corporate performance. To each their own.

    I trust cash, bonds, and government insured accounts more.

    Most of all, I trust honest, well run business with our nest egg.

    In 2020, I knew we were headed into an economic roller coaster, at best, and I chose to keep 75% of my net worth in companies that I know to be honest, well run, and profitable.

    I don't declare myself correct. My point is to point out that I do not share the risk assessment of 99.9999% of people. Cash is not completely secure, nor are bonds, savings accounts, etc. They are less secure than people realize.

    Because of this view, I don't see leveraged corporate ownership to be all that risky, in some situations. Obviously, we are not talking about 10:1 leverage. We are talking about a mortgage that Mike could probably pay off, even if his investments became worthless. If his broad spectrum investments become worthless, there is a very strong chance the banking system will be in such trouble that debt might even become invalid. We don't know what that will look like.... yet. We will, of course. lol! In the next 10 years, there will probably be a few events that will both help and hurt Mike. If he ignores these things and hangs on, he is almost certain to arrive at a completely different level of net worth than he would have without leverage.

    Again, this is entirely different than using margin to buy stock and having the stock fly away like a bird when the stock slips a few points. That is a fool's errand but that is not what this thread is about.

    I am not trying to be contradictory or declare any sort of victory. My goal is to highlight how different our points of view are, in case we chose to look over the other's shoulder to observe a different financial management technique.

    Kudos Mike. :thumbsup::cool2:
     
    #124 TomB16, Aug 21, 2022
    Last edited: Aug 21, 2022
    MrMike and Spud like this.
  5. Spud

    Spud Active Member

    Joined:
    May 6, 2022
    Messages:
    197
    Likes Received:
    151
    I'm impressed with Mike's journey. Through a properly managed investing strategy he has done very well in my opinion. He mentioned earlier they are also paying down the principal amount also.
     
    MrMike and TomB16 like this.
  6. TomB16

    TomB16 Well-Known Member

    Joined:
    Jun 22, 2018
    Messages:
    3,601
    Likes Received:
    2,136
    De-risking, over time. :thumbsup:
     
    MrMike and Spud like this.
  7. Rayak

    Rayak Member

    Joined:
    Jul 30, 2022
    Messages:
    65
    Likes Received:
    40
    I don't think we disagree nearly as much as you think we do. When you EXPLAIN your position as well and fully as you did in the message I am replying to, then there's no issue whatsoever.

    But just to post " ... there's no real difference between investing in quality stocks and owning your own business ..." I feel has massive potential to mislead the uninformed. That was my ONLY concern.

    Much respect and have a great day!
     
  8. Rayak

    Rayak Member

    Joined:
    Jul 30, 2022
    Messages:
    65
    Likes Received:
    40
    Mike has apparently done a great job of investing and done very well for himself. My congratulations to him!

    My only concern is that I didn't want some newbie to come along, register for these forums, mortgage their house, "invest in quality stocks" and "become a business owner", all in the same week, based on something they read here.
     
  9. Spud

    Spud Active Member

    Joined:
    May 6, 2022
    Messages:
    197
    Likes Received:
    151
  10. TomB16

    TomB16 Well-Known Member

    Joined:
    Jun 22, 2018
    Messages:
    3,601
    Likes Received:
    2,136
    Whenever someone does something, there is a lineup of people eager to explain they are wrong, it's a bad idea, and the person who did something should do it the way the person who does nothing except criticize others should do it.

    It's a shame because the whole point of forums such as this is to learn from other people. Both success and failure are learning opportunities.

    I don't have to do what Mike did to learn from him. We are all the better for him sharing his experience, even those of us who think his activities are a bad idea.
     
  11. Rayak

    Rayak Member

    Joined:
    Jul 30, 2022
    Messages:
    65
    Likes Received:
    40
    I have never said Mike was wrong, never said it was a bad idea TO DO WHAT HE DID, nor am I criticizing anyone.

    So I will repeat myself:

    Mike has apparently done a great job of investing and done very well for himself. My congratulations to him!

    My only concern is that I didn't want some newbie to come along, register for these forums, mortgage their house, "invest in quality stocks" and "become a business owner", all in the same week, based on something they read here.

    I apologize if I have upset you - that is NOT my intent! Based on what I've read of your posts, I have much respect for you.
     
  12. TomB16

    TomB16 Well-Known Member

    Joined:
    Jun 22, 2018
    Messages:
    3,601
    Likes Received:
    2,136
    Fair enough.

    My concern is people buying and selling stock without realizing they own a share of the company with each unit held. Owning stock is owning a company. The fraction may be very small but it is ownership by definition.

    So, I understand your concern about the spread of misinformation. :cool2:
     
    Spud likes this.
  13. TomB16

    TomB16 Well-Known Member

    Joined:
    Jun 22, 2018
    Messages:
    3,601
    Likes Received:
    2,136
    Mr. Mike, I apologize for dumping on your thread but I am about to drop three more logs on this fecal tepee.


    For legions of people who think, like Rayak, that owning a stock certificate is not the same as owning a company, read on for a dissertation on ownership.


    People who purchase 1/10 of a Tesla share using their Mom's credit card own the equivalent of a single bacteria cell in Elon Musk's colon. They do indeed own it, but it has no relevance in the real world. Frequent buying and selling of that fractional share further reduces the relevance of the ownership. Infinitesimal, perhaps, but not 0.

    But, let's consider what happens as an investor moves toward retirement scale. What does that look like?

    Let's say you own 5 companies. That's a nice portfolio. One of these companies is a $15M market cap REIT. The guys operating the REIT are young fire starters who fractured off a large cap REIT you followed and held for years. You admire these gentlemen so you buy a chunk of their REIT. Let's say, you start with $75K of stock, not a big ratio of a portfolio as retirement nears.

    A couple of years goes by the company starts paying a nice dividend and now has $23M of market cap. These guys are moving and shaking in a way you find very agreeable so you throw another $150K onto a position that had grown to $110K. Now you are holding $270K of this company. This is not an infinite sum or an amount you can retire on but you are earning a nice income every month (which you chose to DRIP).

    A couple more years go by and you notice that one of your 5 companies is no longer in your account. There is a bunch of money where those shares used to be. "Your REIT was just bought out by Blackstone" (tm) at a small premium over market cap.

    What to do with the money? You might spread it across the 4 remaining positions or you might hit your favourite positions real hard and maybe also hold back a little bit as dry powder for a rainy day (HISA, bonds, debentures, etc.).

    So, now you're adding another $200+K to a position that gained and DRIPed its way from $270K to $350K. All in, you have near $600K and the market cap of this stock is now $31M. For a small company to double in 5 years is not unusual at all. In fact, it is expected. This doubling also hurled you to a higher net worth level. Now you own close to 2% of the market cap of this company.



    But... do you really own it?

    One day, around this time, get a phone call from Investor relations at the company. They want to bring a motion and are campaigning directly to you in hope of your support. This is going to start happening regularly because... you own a significant chunk of the company.

    The two publicly traded companies I worked for kept track of stock holders at roughly 1% ownership and up.

    Let's say you sell a property, a parent dies and wills you some money, or you sell another stock. As you get older, you tend to come into money. Now you have cash that needs a job. The obvious choice is to pump it into Zygote REIT, as they are moving and shaking.

    So, you hit the position with a bunch of cash and now you are up around or over 3%. Guess what? You get another call but this time, they want to discuss an upcoming opening on the board. They want to know if you support their recommended candidate or perhaps are interested in a board position yourself. They are asking because you own 3% of the company.

    Stock shares are real ownership. Believe it.


    Investing is magic, gentlemen. You pump $150K into a company over 12 years and through DRIP and equity gains, it turns into a 750K position. That is investing. The odds of investing $150K to $750K of value are 95%. The odds of trading $150K to $750K are probably under 1%.
     
    #133 TomB16, Aug 22, 2022
    Last edited: Aug 22, 2022
    Spud likes this.
  14. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    73
    Likes Received:
    43
    I suppose my only real concern in your scenario is the amount they "mortgage their house". I started off investing only $65K - and that may be too much for some, especially now with interest rates!!! I would suggest to them, start off with $5K (or whatever they feel is a small amount) for several months and see how that turns out.

    But you're right - people shouldn't look at where I am now and think it's amazing and jump right in with $200K. It's been 2 years for me - where I am now is NOT where I started... AND more important! WHEN I started is not now - I started during COVID when everything was cheaper. Unfortunately, people don't like to wait and may go too hard too fast. I'd say that is mostly not good for the stress of it. This would all be for nothing is you panic sell.


    Right - I was the first of my friends and family to use my HELOC to invest. And after sharing with friends and family, my dad took money out, and a couple friends did the same thing. But each one is doing things different here and there - they changing it to make it work for them.

    I'm just sharing what I did but someone can look at it and think "mmm, I don't like this part." and do something else :) I'm not sure why someone would think it's a bad idea but if they see what I'm doing as proof to stay away.... I guess I'm glad to help either way haha
     
  15. Rayak

    Rayak Member

    Joined:
    Jul 30, 2022
    Messages:
    65
    Likes Received:
    40
    I think we are getting hung up over terminology and common usage of the words "business owner" or "owner". I am retired. I own stock in quite a few companies, and ETFs that own stock in many more companies. I seriously doubt that anyone, including you, thinks of me as a "business owner" or "owner" of one or more businesses in the common usage of the language as it is typically applied.

    So YES! I own a very small portion of MANY different businesses - but me nor anyone else would consider me a "business owner". I'm retired, and like most retirees and many non-retirees, I have investments and own stocks. The fact those those stocks technically mean that I own very tiny portions of many businesses does not sway anyone's opinion (that I am aware of, at least) that I am not, in fact, a "business owner", in the common meaning of the term.

    I think for many, if not most, people, the term "business owner" denotes someone who is actively involved in the management of the business(es) they own, or who at least gets to DECIDE who will be managing it - or have a major say in the business, at least.

    For stock owners, perhaps "silent absentee minority non-managing co-owner" in a business might be more in line with common usage? :) Or maybe just "stock holder".
     
    #135 Rayak, Aug 23, 2022
    Last edited: Aug 23, 2022
  16. TomB16

    TomB16 Well-Known Member

    Joined:
    Jun 22, 2018
    Messages:
    3,601
    Likes Received:
    2,136
    How are things going, MrMike? We are now in a period of significantly higher interest and the market is in a slump. Are you still OK? Is that fat Enbridge dividend still paying the interest?
     
    MrMike and Spud like this.
  17. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    73
    Likes Received:
    43
    Hi all, Another Interest rate hike, another update [​IMG] Here we go:

    Pre Interest Hike
    Interest: 4.9% or $1,011/month
    Net profit: $819/month

    After Interest Hike
    Interest: 5.65% or $1,156/month - an increase of $145/month
    Net profit: $630/month

    Amount invested: $280,000 ($245,585 is from HELOC)
    Market value: $336,447
    NET: +$56,447

    A net of only $630 - it's getting lower and lower. I remember back in January 2022 I was netting $1,205/month. Ahhh, the good old days haha

    What's changed?
    I sold out of many income funds and reallocated the money into other funds I own, mostly to bring them up to $10K each. Fund I sold include:
    • VDY
    • ZDY
    • RioCan
    • ZWK
    • DIV
    • DFN
    • FTN
    • DS
    • AFCC
    • CGXF
    • INO.UN
    • FLI
    • ZWK
    • ZWE
    • ZWG


    Current Portfolio - Projected dividends: $2,100/month
    My portfolio now looks like this: (all accounts: 2 TFSA, 1 Non-reg)

    GROWTH - all in TFSAs
    • ZSP
    • ZQQ
    • AMZN
    • AAPL
    DIVIDEND-GROWTH
    • T
    • BCE
    • TRP
    • ENB
    • CM
    • BNS
    • TD
    • RY
    • BMO
    • MFC
    • GWO
    • AQN
    • CU
    INCOME FUNDS
    • HDIF
    • HDIV
    • HYLD
    • TXF
    • HTA
    • EIT.UN
    • GDV
    • ENS
    • FFN
    • SBC
    • LBS
    • RS
    Going forward
    Plans unchanged - reinvest TFSA dividends into those Growth holdings (get AMZN, APPL to $10K then into ZSP/ZQQ). Non-reg is used to pay down my HELOC - specifically the portion used to fund my TFSA - I'll then be able to use that available room later to invest in my non-reg account where I can claim the interest. I created a list of remaining stocks I want to fill out my portfolio. Once I have all those stocks, I can start increasing their weight - no more new stocks.

    Those new stocks include:
    • CNQ
    • SLF
    • FTS
    • POW
    • EMA
    • CNR
    • PPL


    That's it for now. Happy HELOC investing!
     
  18. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    73
    Likes Received:
    43
    Thank you for your concern :) But no, Enbridge's $676/quarter is not covering my interest haha That would be awesome if my interest was $225/month.

    Yes, it's still going well... just not AS well. It's very unfortunate how high interest rates have gotten but hey, still making $630/month. If interest rates increase another 2% (bringing me to 7.65%), I'll start using all dividends to pay down the loan. The only reason I'm not starting now is because, I hear on the news that people are freaking out over interest now, let alone if it continues to go up. So I'm hoping it doesn't get that far but, anything can happen.
     

Share This Page