http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin The Danger of Buying on Margin The Chinese stock market is falling again. What this brings to mind is the danger of buying on margin when investing in stocks. The New York Times writes that Chinese shares tumble again. After several weeks of relative calm, tumult returned to China’s stock markets on Monday, casting doubt on the government’s measures to support share prices. The main Shanghai share index plunged 8.5 percent on Monday, its steepest one-day drop in eight years. Shenzhen’s main index fell 7 percent. “The return of debacle!” China’s official Xinhua news agency said Monday on its verified Twitter account, noting that in the sell-off, about two-thirds of all mainland-listed stocks fell by the daily limit of 10 percent. For more than a year, the country’s stock market soared, as investors aggressively borrowed money to buy shares. The danger of buying on margin is that if you do not get in and out in a hurry you run the risk of losing all of your investing capital in a market downturn. When many investors are in the same situation of having borrowed money to invest a stock market correction can turn into a stock market collapse. Three trillion dollars-worth of equity or more has evaporated in the last couple of months in the Chinese markets. But the lesson is good for all investors to learn. There is danger in buying on margin. Should this approach be avoided at all costs or can an investor do this and not get hurt? Fundamentals versus Market Sentiment There are two sets of fundamentals that drive stock share prices. How much money does a company make and how much will it make in the future? The other is how much money is invested in a company, by whom and how likely are they to buy or sell. This second set is closely tied to the other driver of the market, market sentiment. It goes like this. A stock or the entire market has a good quarter and the stock price goes up. This happens again and again and those who invested early in the game have made money. New investors judge the stock on its recent performance and do not look at the basics. By now the stock is priced above what the basic set of fundamentals will support. Speculators and hedge funds have purchased large blocks of the stock for short term profit. Cramer in The Street writes about a stock downfall not caused by fundamentals. Williams Partners (WPZ) stock is up by 1.78% to $45.14 in pre-market trading on Friday morning, after Jim Cramer attributed the recent decline in its share price to hedge funds on CNBC’s Mad Money Thursday night. TheStreet’s Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio, said some hedge funds have to liquidate their share, which will continue to make master limited partnerships (MLPs) fall.

1. By www.ProfitableInvestingTips.com

2. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The Chinese stock market is falling
again.

3. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
What this brings to mind is the danger
of buying on margin when investing in
stocks.

4. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
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5. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The New York Times writes
that Chinese shares tumble again.

6. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
After several weeks of relative calm,
tumult returned to China’s stock
markets on Monday, casting doubt on
the government’s measures to
support share prices.

7. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The main Shanghai share index
plunged 8.5 percent on Monday, its
steepest one-day drop in eight years.
Shenzhen’s main index fell 7 percent.

8. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
“The return of debacle!” China’s
official Xinhua news agency said
Monday on its verified Twitter
account, noting that in the sell-off,
about two-thirds of all mainland-listed
stocks fell by the daily limit of 10
percent.

9. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
For more than a year, the country’s
stock market soared, as investors
aggressively borrowed money to buy
shares.

10. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The danger of buying on margin is
that if you do not get in and out in a
hurry you run the risk of losing all of
your investing capital in a market
downturn.

11. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
When many investors are in the same
situation of having borrowed money
to invest a stock market correction
can turn into a stock market collapse.

12. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Three trillion dollars-worth of equity or
more has evaporated in the last
couple of months in the Chinese
markets.

13. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
But the lesson is good for all
investors to learn. There is danger in
buying on margin.

14. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Should this approach be avoided at
all costs or can an investor do this
and not get hurt?

15. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Fundamentals versus
Market Sentiment

16. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
There are two sets of fundamentals
that drive stock share prices.

17. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
How much money does a company
make and how much will it make in
the future?

18. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The other is how much money is
invested in a company, by whom and
how likely are they to buy or sell.

19. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
This second set is closely tied to the
other driver of the market, market
sentiment. It goes like this.

20. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
A stock or the entire market has a
good quarter and the stock price goes
up.

21. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
This happens again and again and
those who invested early in the game
have made money.

22. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
New investors judge the stock on its
recent performance and do not look
at the basics.

23. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
By now the stock is priced above
what the basic set of fundamentals
will support.

24. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Speculators and hedge funds have
purchased large blocks of the stock
for short term profit.

25. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Cramer in The Street writes about
a stock downfall not caused by
fundamentals.

26. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Williams Partners (WPZ) stock is up
by 1.78% to $45.14 in pre-market
trading on Friday morning, after Jim
Cramer attributed the recent decline
in its share price to hedge funds on
CNBC’s Mad Money Thursday night.

27. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
TheStreet’s Jim Cramer, Portfolio
Manager of the Action Alerts PLUS
Charitable Trust Portfolio, said some
hedge funds have to liquidate their
share, which will continue to make
master limited partnerships (MLPs)
fall.

28. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The danger of buying on margin such
as with a hedge fund is that you can
get on the wrong side of a trend and
have to sell at lower and lower prices
in order to avoid a margin call.

29. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
And as short term speculators who
hold large positions sell in larger and
large quantities you stock price falls a
well.

30. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Where Does Buying on
Margin Work Out Well?

31. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
People make money investing in
stocks when they do their homework.

32. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Sears Holdings Corp went public in
2003 for $13.20 a share.

33. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
When seen as a real estate play the
stock went up over next four years to
nearly $200 a share!

34. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Sears Holdings Real Estate is still
one of the largest corporate real
estate organizations in the world.

35. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Sears Holdings Real Estate is one of
the largest corporate real estate
organizations in the world, with a
portfolio of retail locations that is
second to none.

36. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
Whether you are a retailer,
developer/investor, or broker, we
have a solution to fit your need.

37. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
The stock is back in the $20 range
but the point is that there was a lot of
money to be made when the stock
went up steadily from $13 a share to
nearly $200.

38. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
That is where buying stock on margin
can work out well.

39. http://profitableinvestingtips.com/stock-investing-tips/the-danger-of-buying-on-margin
It has to do with homework and
timing.