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cata comments on A Guide to Rational Investing - Less Wrong Discussion

27 Post author: ColbyDavis 15 September 2014 02:36AM

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Comment author: cata 15 September 2014 05:10:03AM *  6 points [-]

You mentioned at your talk that you were leveraged well past 100% of your net worth in equities. Can you elaborate on how you came to make that decision? As far as I can see, the only source of money at a reasonable rate that I can easily invest is margin, and that comes with both a 1.5-2% interest rate and the risk of margin calls, which makes me nervous. (In addition, I'm not so confident that I would be psychologically capable of making good decisions if such a really huge volatility happens to me.)

What's your thought process about that like?

Comment author: ColbyDavis 15 September 2014 01:32:08PM 4 points [-]

I've obtained my leverage mostly through credit card stoozing, the act of taking advantage of low and 0% promotional credit card balance transfers and rolling the balances over as necessary. As I said at the talk and every time I bring this up, I do NOT recommend this unless you, like me, have an Asperger's level attention to financial minutiae. This is also a strategy that only is worthwhile while your net worth is relatively low. I started doing it in college and am now winding the strategy down, to be replaced with portfolio margin, which is cheaper and more scalable for people with more substantial assets to work with. You are right though that margin calls are a risk, however, so active portfolio monitoring and careful use of mean-variance optimization and other risk management techniques is essential. If you do not have the time or skills to employ these, or to use a financial advisor who is, then I cannot recommend it.

Comment author: ESRogs 17 September 2014 10:50:28PM 0 points [-]

leveraged well past 100% of your net worth in equities

As an additional data point, I am currently using that strategy with interactive brokers. My justification is that I'm still young and can afford to take risks. To construct the portfolio, I created a small wealthfront.com IRA account, and then replicated it in IB (with some slight tweaks) using portfolio margin for leverage.