• The Noob Investor


Leverage...It's Not Fun To Be On the Pointy Ends Of The Double Edged Sword

To win, you got to stay in the game.

Leverage sounds cool and sexy...but done excessively, it can also blow up your entire portfolio.

It's not to say leverage alone is bad. A spoon alone doesn't make you fat. It's what you do with the spoon.

Leveraging say 5% of your portfolio doesn't hurt you so much. But people tend to underestimate the risk and get greedy. Leveraging 100% of your portfolio, is way different from just 5%. Better still when you write (sell) a call, and that meme stonk goes to the moon, that's not very fun times - there's a real risk of financial ruin right there.

As Dorothy says, "We're not in Kansas anymore".

We make mistakes in investing, but try not to mistakes big enough that can kick us out of the game.

"Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people." - Berkshire Hathaway Annual Report 2010.

As always, "Come for the laughs, stay for the fun times".

#joke #comic #parachute #skydive #safety #funny #leverage #stayinthegame #fail #win

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