Why this investor chooses to borrow when times are bad

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#1
Big talk - this guy obviously hasn't gotten "burnt" badly yet from his borrowing!

The Straits Times
Aug 20, 2011
financial crisis
Why this investor chooses to borrow when times are bad


By Melissa Tan

RIGHT after the markets crashed in late July Mr Vincent Hee went to his bank to borrow nearly $50,000.

It was not because he was in dire straits - quite the opposite, in fact.

Mr Hee, 43, a project development executive, is one investor who has managed to make money amid a sea of red.

He told The Straits Times that he has made a return of about 20 per cent - that is, $10,000 for every $50,000 borrowed - by putting the borrowed money into the stock market every time he thinks that the market is 'in favour'.

Apart from the loan, he uses a bit of his own capital as well.

'I actually like to borrow money, because if you have money, you like to spend it but when you owe money, you tend to save more.

'Also, as a borrower you have some bargaining power because banks want you to borrow.'

He says he has been doing this every three to six months since the 2008 market crash, and prefers to invest in stocks as they are easier to sell than property.

'I can do this also because I don't have kids to feed,' he quips.

Since then Mr Hee, who says he earns a salary 'coming to five digits', has made more than enough to cover the cost of the BMW he bought in April 2007. He declined to disclose the exact amount.

He has been investing in transportation-related stocks, for example, since 'oil prices drop when the market drops'.

'The best time is exactly when the market is no good; I only invest when the price is dropping,' Mr Hee says, adding that he was using borrowed capital mainly to take advantage of low bank interest rates.

'Banks set a low interest rate because they want to encourage people to borrow, so why not go for it? It's better to use someone else's money to earn money instead of your own. Just take it first and wait for a good time to dump it into the market,' he says.

According to Mr Hee, the interest rate his bank has offered him is slightly below 2 per cent, excluding a processing fee, though he noted that it was partly because of his 'good track record'.

'I don't prolong the period of repayment because if I pay back early or on time, my bank is more willing to offer a promotional rate for future loans,' he explained.

Mr Hee says he is confident that he 'can recoup the bank interest rates in long run. Once shares drop, there's a limit. It's only a matter of time before they'll rebound because people still need to eat,' he adds.

But he cautions that investors seeking to follow his example 'must understand how long you can hold the stock'.

At the same time, try to maintain happy thoughts, since there's nothing you can do to prevent share prices falling, Mr Hee said.
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#2
Yes. I have the exact feeling when I was reading this article; and in times like this, I wish the ST editors could have exercised some editorial restrain and not 'sensationalise' stock market success at such times. Everyone boast about their success and hide their failures.

Of cos to his credit, he did caution people not to follow his examples. But imagine someone who is desperate for money or to make a fast buck, all he will read from the articles is 'borrow money, buy shares, make money'. Who would care about a half-hearted caution at the end of an article that screams 'easy money'!

I hope this article dun cause people to blindly follow him; but I fear the damage has been done.
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#3
This article was funny.

"RIGHT after the markets crashed in late July"....the market hasn't crashed, it just wobbled a bit.

And I laughed at the last sentence....try to maintain happy thoughts....!!???

Seriously though,
It didn't say if he is borrowing against private property, or against shares he brought using 'a bit of his own capital'.

Also, with a salary 'coming to five digits' and 'no kids to feed', the 50K loan is not large.

Might be worth looking in to. I wonder if, with no private property, I can get a line of credit, at a reasonable interest rate, payable only if I use the funds.
I wait until there is money lying in the corner, and all I have to do is go over there and pick it up.
Jim Rogers
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#4
(20-08-2011, 11:41 AM)lonewolf Wrote: ...
I hope this article dun cause people to blindly follow him; but I fear the damage has been done.

I agree with your thoughts. But I guess little can be done to stop people from being blinded (by greed) and follow him blindly. Angel
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