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Tag Archive: LEVERAGE


A person was arguing with me that he do not want to start the SIP as the markets are at all-time high. He feels it there is too blogmuch risk involved. Later on I explained him the logic of SIP that he is not investing only once or when the markets are high, it’s a long term commitment not a month’s affair. Some of us are so taboo that they still think investing in market is gambling, buying a lottery ticket or a horse race.

Please understand the power of compounding; equities have outperformed every asset class in the long run if done with dedications and discipline.

You have to burn your fingers to learn the skill, the same way when children don’t understand and they touch the hot stove unless they realise it’s hot  and skills needed to operate it. Continue reading

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What is a Hedge fund

Hedge fund is a type of private and unregistered investment-pool that employs sophisticated hedging and arbitrage techniques in blogboth domestic and international markets to generate high returns.

Traditionally Hedge funds have been limited to sophisticated, wealthy investors because they required a large initial investment.

Earlier most of the hedge funds strategies such as leverage, long, short and derivative positions were focused on corporate equity markets. But now hedge funds new focus areas are commodities and money markets.

Because hedge funds are unregistered, they can use securities and strategies that are either prohibited or restricted in registered funds. Continue reading

Leverage versus Debt

Few days back Macro business published an article on Leverage versus debt . Found interesting and thought of sharing my point of view on it.Google

Europe, Japan and America are printing money at an extraordinary rate. It has reduced the cost of debt to negligible levels. Usually this is explained with reference to what is happening in the conventional economy, but I suspect there may be another explanation. The systemic effects of the bizarre financial system that we have created, which is based on leverage. That leverage, which is thought of as debt, is not really what we mean by debt.

One of the features of the explosion of derivatives in the last 15 years, the rise of “meta money”, is that it was achieved through the creation of massive amounts of leverage. When Long Term Capital Management nearly destroyed the world financial system in 1998, it was done through a highly leveraged play on the rouble. LTCM was brought undone when Russia defaulted on its bonds.  Continue reading

The way derivatives have evolved over the years they attracted criticism along with the praise.Corporates continues to take advantage of leverage with them many went belly up and some made fortunes out of them.

Here are some of the Jargons these days the firms uses :

  • Diversification : Lets do several things that we don’t know any thing about badly
  • Sticking to the knitting or Focus : Lets get back to doing what we once did if any body can remember what it is and how it is to do it

With the continuation of my last post  some book rules for investments  trying to reveal some of the structured products offered in the open economies of world amaze to see that more than 10 billions of structured products are sold every year :

  • Reverse convertibles : They are unsecured short-term notes that are linked to the price of an underlying stock (typically not the stock of the issuer). The security comes with a high coupon rate (from 7 to as much as 25 percent). At maturity, the investor will receive the interest payment plus either 100 percent of his original investment amount or a predetermined number of shares of the underlying stock.
  • An accumulator : This is one of the famous product in Asia. An accumulator is essentially a contract that obliges investors to purchase a security, currency or commodity at regular intervals at a fixed price. Continue reading
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