Wednesday, August 08, 2018

My next talk #1 - REITs, Leverage and Financial Independence

I'm not too sure whether it would be productive promote my next talk. Without any substantive marketing, I was told that 80% of the tickets have already been taken up. The registrants have already exceeded the number of seats available but as the talk is free, a substantial number of registrants would not show up.

Nevertheless,  if you do not mind the risk of standing through out my talk, you can still register for the talk here :

I thought perhaps I should talk about some of the heftier concepts of leverage over the next few blog posts so that attendees will not be confused when I explain these concepts at the talk itself. Explaining these concepts were a struggle so it's better for me to pre-empt the key questions on my blog before the talk itself.

One confusing aspect of leverage is terminology. I used to say 200% leverage on this blog which is kinda confusing because there is no formal definition for X% leverage anywhere.

What I actually mean by 200% leverage is to have an equity multiplier of 2.

So if you have $1 and  you borrow one more dollar, you have $2 to buy a portfolio of REITs. This comes with an upside of getting higher dividends but it also magnifies your loss.

If you have equity multiplier of 2, it also means that you have a debt to equity of 1. You have $1 of debt and $1 is owned by you.

A more conservative approach to leverage is to leverage your portfolio by 150%. Tis way, you have $1 and you borrow $0.50, allowing you to buy $1.50 of REITs. I recommend that most interested parties start with this amount just to get the hang of the volatility of the margin account.

So when I say 150% leverage, what I mean that the portfolio has an equity multiplier of 1.5. If you apply a lower equity multiplier, you will still be able to magnify your gains but the odds of a margin call becomes much smaller.

If you have equity multiplier of 1.5, it means that you have a debt to equity ratio of 0.5. You have $0.5 of debt and $1 is owned by you.

For my talk, I will try to use equity multiplier as a terminology, but this creates yet another confusion because I have to explain what the margin ratio is.

This will be another blog topic as we ramp up towards 17th August 2018.


ziyang said...

All tickets are sold out already. And there is no place for online registration. Can I just go there on 18 August 2018? I do not mind standing.

Another question, both Poems and Maybank provide leveraged margin account for REITs. Which you prefer and the reason?

Christopher Ng Wai Chung said...

I'm not sure whether you will be allowed in so I can't really comment on this.

I use Kim Eng and have no idea what the POEMs offering is like.