LogFAQs > #951026104

A lot of blue chip stocks fell literally 80-90% in March 2020. If you had a retail/travel heavy portfolio, you could have been in serious trouble. Even if you didn't actually get margin called, the experience of watching that crash would have been vastly more stressful - knowing that it does not matter that you are confident the business will survive and come back, if it falls some more tomorrow based on pure fear and deleveraging, you could be broke, even if it immediately recovers.

Like, suppose you owned UAL last year, and it lost around 75% of its value. Your 10% margin has now become 40% margin. In the middle of a pandemic with the world shut down. At this point without the margin you would see this as a great buying opportunity, but with the margin you are probably thinking about if you should sell some to bring down the risk because 40% is awfully high.

On the other side, how much extra in gains are you really getting with 10% margin? Probably not a lot in the grand scheme of things. Like if I retire with 10 million dollars vs. 11 million dollars, does it really make that big a difference to me? I don't think it's really that big a difference. For me, it's not worth the tail risk of hitting 1929/2008/2020. I mean if the rate is 3 in a century that means we'll probably hit 2 more in my lifetime.

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September 1, 2003; November 4, 2007; September 2, 2013
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