That is what I’m personally doing but to be clear I’m not advocating one way or another. Thus far my aggressive usage of margin has caused me to lose shares and sell in a tax-inefficient manner. I didn’t expect that, but oh well. I got the opportunity to buy a lot of LEAPS at what I believe is an extreme discount, so if I’m right about the next two years for TSLA then this crash was actually extremely beneficial if I just stay the course, because the gains from the LEAPS would far outstrip the loss from margin issues.
Here’s how I looked at this a few weeks ago and nothing’s really changed.
I’m 28, single, have no kids nor house, and am ok with living a lifestyle that is exceptionally frugal by first world standards. This situation profoundly affects my risk tolerance with respect to loss of capital. I could sell my Tesla and go back to exclusively bike/transit/Uber without much disappointment. I could move to a cheaper apartment that’s not in the city. My brokerage accounts could go to zero and I could recover and probably be a multimillionaire before age 35 or so, because I can still get a paid job and the long-term TSLA opportunity still hasn’t gone anywhere. The longer the irrationality persists, the bigger the opportunity to funnel income into LEAPS until TSLA catches up with reality.
My wife’s works as an engineer and makes enough money to pays for everything for the daily living and for the kids. She has a secure pension fund. I bought the house and the Model Y and purchased 250k of TSLA during the pandemic crash and 250k on margin. It was nice to see that almost 10x before it reversed. My mistake was to refund gradually my margin but at the time time buy more TSLA on every dip it went -10% to -20%. So my margin never reduced. Instead of selling shares to convert to LEAPS, I doubled my workload to have sufficient funds to have sufficient margin to back my puts I sold for Jan2025 at 430 strike price. These are my reverse-LEAPs play to clear my whole margin today and it’s give me 2 years to make the money to buy these shares if for whatever reason the SP doesn’t recover. I didn’t know how much longer the stock price can stay irrational but they say it can stay irrational longer than we can stay solvent. The advantage of still working is that my solvency increases considerably over time.
I discourage margin usage to everyone who is starting to invest, unless they are ready to lose every last cent they have invested. Once that said, it is still not fun to see that money disappear even if you don’t need it and ready to lose it all. This reminds me when I went to six flags with my kids last month and we did all the roller coasters 3-4 times straight and had so much fun until we went in the condor and the Chaos, after spinning too much the head down my older boy started vomiting on the way back home in the Model Y while I was driving with nausea. Margin is fun until it’s not.