Are there any Stock Brokers amoung us???

[callen]

Margin Lending could be regarded by many as a terrific idea.

Why - because it gives you an exit strategy from the market, something which most people don't have.

In all market crashes (or individual share crashes) the buy and hold people lose bucketloads of money, whereas the margin loan investors (gamblers?) get out when they have lost say 20%.

Buy and hold can lose you 95% or 100%......

I work in financial planning and this is VERY incorrect. Margin lending/geared investing is alot more risky than using just your own funds. E.g. If you invested $20K of your own funds into stock XYZ and the company went into liquidation you would loose all or most of your $20K but if you invested $20K of your own funds and then used a further $20K of margin lending/borrowed funds and the company went into liquidation you would be loosing $40K!!!! That is $20K of your own money + you would still owe the lender $20K.

If the stock is reducing and hasn't gone into liquidation then margin lending will not just sell all of your stocks ("exit strategy") as mentioned above and recoop all of their money they will sell enough of them that it brings your LVR (Loan to Value Ratio) back inline with their guidelines. This not only means it reduces the value of your stocks/units but it also reduce your amount of units which means it is much harder and will take much longer for you to recoop your fund.

But if this same stock was to double in value in the above example you would have made 100% return if not geared ($20K x 2) or 300% return on your initial investment of $20K if you had geared as above minus any interest paid on the loan.

In regards to the OP's questions.

1. In most case preference shares are not available to the general public as they are offered to existing share holders of the company and corporate/institutional investors first. If they are available to the public I would suggest speaking with a stock broker and getting them to purchase the stocks for you as it can be quite difficult to do this through an online brocker e.g Commsec, Etrade etc.

2. Once again it would be best to speak to a broker about this specific stock to get their full insight. In general though Volkswagen is one of the exceptional standouts of the automotive manufacturers as most automotive manufacturers have very little to no margin and this reflects in the return on their stocks. VAG has very sounds fundamentals as a company but as an industry in general be warry of automotive stocks. If you are adamant that you want to invest in VW because "you like the company" etc. Then make sure you do your research but if you want to make money there is lower risk industries to invest in.

3. ref above + be mindful that unless you will not be affected or concerned if you loose your money margin lending/gearing is a tax effective investment strategy that should be used only for long term investments for people who are willing to take high amounts of risk with in their investments and have sufficient cash flow to cover repayments as well as margin calls if need be. If you own a property and have equity in it you will normally get a lower interest rate and not have to worry about margin calls by taking a supplementary loan against your property.

As far as investing in the stock market in general a GOOD financial adviser or stock broker will very strongly advise you not to invest in one stock as diverification is the key to reduce your investment risk. The problem with this is that to have a properly diversified portfolio that contains a good blend of aussie stocks, international stocks, property or property trust, cash, fixed interest etc. you need to have alot of money. This is why for smaller investments i.e. less than $100K a managed fund may be a better option unless you are a big risk taker.

Also be aware that investing international holds additional risks than investing in australia as unless your investments are hedged which a direct international stock investment will not be you will aslo have to foreign exchange risk. E.g. If you buy international stocks and our dollar keeps going up even if the stock has stayed at your purchase price your are already down and vice versa i.e. if the aussie dollars goes down and the stock hasn't moved your investments has already gone up if you sold out and bought the funds back into australia.

Disclaimer: This advise is general only and has NOT taken into account your personal goals, objectives and circumstances. You should consult with an authorised investment adviser before making an investment.