Wednesday, June 14, 2017

Equity Management #16 : Troll Portfolio.



It is interesting that some folks who I did not expect to follow my blog are observing this margin trading experiment so here's another update :

Apparently the good folks of Maybank Kim Eng do read my blog and called me up to apologize for the "mistaken" margin call. They also told me that they were not sharing email accounts and my broker did make a mistake and triggered the margin call on Saturday.

I took their word for it because my problem is solved and the system is reflecting my margin numbers correctly. I'm also very forgiving because I am borrowing at only 2.88%, smart readers might wanna hop in after I help these guys even out their operational kinks but the choice is yours.

So let's  recap what a margin ratio is :

Margin Ratio = ( Value of shares pledged + Value of shares bought using margin financing ) / ( Amount of financing - Cash collatateral pledged )

In my case, I bought about $20,000 of shares and put in $10,000 of collateral.

Starting Margin ratio = ( $20,000 )  / ( $20,000 - $10,000 ) x 100% = 200%

Suppose I lose 30% of my REIT portfolio a few weeks later  and the value of my stocks dip to $14,000.

Margin ratio = ( 14,000 ) / ( $20,000 - $10,000 ) x 100% = 140%

This is the exact amount that triggers a margin call from Maybank and they will write to me to ask for a cash top-up or they will sell off my portfolio.

As such, your margin ratio is somewhat like the number of hit points like in an RPG game. If it dips below 140%, you suffer a margin call which is the equivalent to making a death save in D&D.

Because every quarter my portfolio will generate some dividends into my account, I hope that this would gradually increase my margin ratio over time.

For RPG players, this portfolio behaves like a D&D troll without a maximum hit point cap. Ignore it for a while and it will recover lost hit-points over time. But I guess we'll find out about that aspect of margin trading soon enough as I might face even more operational issues by then.

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