Michael Wursthorn

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1,567 appearances 29 recordings 1 series first heard Jul 2017 last heard Nov 2021

Michael Wursthorn’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · The Risks of Margin Borrowing for Everyday Investors · 30 Nov 2021 podcast

The S&P 500 itself is up 26% so far this year.

Those are phenomenal gains and it's sort of created this effect where investors, you know, on one hand have the fear of missing out.

So you see more piling to the stock market, but also because there's really no other alternatives.

right now to stocks.

So that effect that's been playing out for quite a while now has just really increased that participation rate in the stock market.

Because other than cryptocurrencies, there aren't many other assets that are rising quite as fast.

down drafts in the stock market like Friday are always going to be the biggest risk to anybody using margin debt, whether they're buying stocks or using it to fund other purchases.

Basically, banks require you when they extend you that margin that you're required to maintain a certain level of capital.

And if you don't,

If it falls below that level, whatever it is that the bank determines, either you've got to put more cash into your account to bring it back above that value, or the bank is going to initiate selling your assets.

And they can basically decide whatever assets they want to sell to cover what's called in finance a margin call.

And if you lose those assets, you're taking an actual sale.

So there's that component where that loss becomes fixed.

You can't sort of ride it back up as some investors might do if they, say, put more cash into those accounts.

So that's really the biggest risk.

You can end up losing those assets.

You can lose the future potential of regaining what you've lost if you can't meet the margin calls that the bank issues.

And that can have a knock-on effect that we've seen in the market that when you have those margin calls and the market falls big enough, sort of creates this sort of a domino effect, so to speak, because you have, you know, sort of that downward pressure in the markets, margin calls come, you see that selling then continue because now assets are being sold to meet those margin requirements.

It can be.

And that's why margin debt can be so risky.

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