Buying Stocks On Margin

Buying stocks on margin can result in big losses, but when done correctly, it can mean big earnings too. While it may seem that the risks of buying on margin far outweigh the advantages, there are many reasons why people buy stocks on margin, even though it may cost them in the long run.

What Does Is Mean to Buy On Margin? 
Buying stocks on margin, to put it simply, is doubling your buying power buy borrowing up to 50% of a stock's price from your broker. In order to buy stocks on margin, there are a certain number of things to keep in mind. First of all, certain stocks can't be bought on margin. For example, any stock that is less than $5 a share (also called penny or micro-cap stocks) cannot be purchased on margin. In addition, IPOs (Initial Public Offerings, or companies that have recently gone public) also can't be purchased on margin until they've been on the market a certain amount of time.

What Are the Costs? 
The costs associated with buying on margin can be hefty. If the stock plummets, you could end up owing more than your initial investment. If it falls below 75% of its original value, the broker will issue what is referred to as a margin call since the investor must have at least 35-55% equity in his account at all times. A margin call means the investor much put more money into the account. If he can't do this, however, he'll have to sell the stock, pay the broker the amount owed, which might even be more once commissions are figured in. This can result in stresses and increased costs to the investor.

So What Are the Benefits? 
Despite the costs, there are many benefits to buying on margin as well. These include: 
Increase buying power. With a 50% margin, you can buy up to 50% more stock than you initially could with the cash account. If the stock goes up, you can make twice as much money twice as fast. 
Opens you up to new investment opportunities. With 50% more buying power, buying on margin affords opportunities you may not have had otherwise as a result of not having enough cash equity. 
Ability to invest more. For people who have a talent of picking stocks and make a good deal of money buying on margin, they can use the profits they get to invest in even more profitable stocks.

Will the Showdown in Latin America Cause Problems For Petrobras (PBR)

With Venezula, Comlombia, and Ecuador pounding the war drum I have to think that this can not spell good news for (PBR) Petroleo Brasileiro. With Venezuela providing 10% of US oil and Correa in Ecuador teaming up with Hugo Chavez you have to imagine that Bush will jump in if things get icky.

Again I can't imagine that this will spell good news for PBR.

With this region becoming geopolitically hot and Oil consumption probablly going down. I would revise my $100 price point to $80-90.

Short PBR and watch Latin America

(PBR) Petrobras and (YHOO) the short facts

(PBR) Petrbras shorted at 118.80
(YHOO) Yahoo shorted at 29.65

Update on Short Positions

Sorry I haven't updated anyone on my short positions but I have shorted both PBR and YHOO. PBR was shorted when it was above $120 I know the stock was over inflated and now the news of a decrease in PBR's profits is sure to send this stock back down to the $100 range.

I also believe this YHOO deal is going to be a bust. The companies are like oil and water and even if it does get close to becoming a reality I am sure the EU will not allow Microsoft to gobble up Yahoo.

Excerpt From Chris Liddell - CFO of Microsoft - Why this merger won't happen

If your wondering why the merger between Microsoft and Yahoo won't happen all you have to do is look at this quote :

CHRIS LIDDELL: Well, no one asked me about Yahoo, which is interesting. But I'm sure everyone is vaguely interested in it. You know, their —

MARY MEEKER: What was that? What was that?

CHRIS LIDDELL: Yeah. The small company that we're looking to acquire.

Can anyone say Corporate Culture Clash !!!