Today, I’ve also written lengthy ramblings in Inderes’ Q&A section about the market situation and forecasting. If you have nothing better to do on a Sunday evening, here’s a story about the current state of consensus forecasts and irresponsible speculation on whether the US is experiencing a dead cat bounce.
The questions were at least excellent, and I did my best with the answers 
I thought your remote podcast was really good, both in terms of production and content.
In Inderes’ Q&A, I wrote about using debt leverage mainly with warnings, but at the same time, I admitted that I currently have a loan offer waiting for me. We’ll see if I ever end up using it.
I wonder if many people here use (significant) debt leverage in stock investing? 
Let’s try this one, maybe it will get more responses. This could also be linked to the quite active Investment Loan discussion that has been going on recently.
When considering the risk of debt, one should always remember what is used as collateral for the debt. I would not take significant debt against stocks. But why couldn’t a stock investor have a mortgage? Of course, the collateral value of the apartment should not be used to the maximum, but funds should also be left for changes in the apartment’s value.
But the extremely cautious person should not take any loans or perhaps buy stocks…
Yep, I think the overall situation is what matters. A reasonable home loan, in my opinion, is not inherently “leverage,” but rather an alternative cost to renting (maintenance + loan + repair debt = rent?). But it can still significantly affect the overall situation if too much debt has been taken on for the home relative to one’s capacity to pay.
True. One must not be greedy with those debts but keep one’s head.
For me, a home loan + moving to owner-occupied housing enabled me to invest. Now, my monthly expenses are only a housing company fee of 140€ (incl. water) + loan repayment of 250€/month (maximum loan period), whereas rent would be around 600-700€ (for a two-room apartment). In practice, I only pay 200€/month (housing company fee + interest) + 200€ “into savings.” Of course, I had accumulated some savings before buying my first home.
Of course, I don’t live in the Helsinki metropolitan area, so the value of my apartment isn’t increasing, but I don’t believe it’s decreasing either (it’s not a dying village). I feel very good about it and I don’t think I would have ever started investing if I hadn’t gone to the bank to discuss housing loan matters. The best decision of my life! 
I agree, it’s unnecessary, for example, for a single person to buy a 4-room apartment and pay through the nose for a little “extra” space. A neat, compact apartment is great 
This way, you don’t end up buying unnecessary movable property either.
I don’t have leverage specifically for stocks - and I haven’t even considered it so far.
A couple of good theses to finish with 
A mortgage allows me to leverage through a mortgage payment holiday, so I immediately took a 12-month payment holiday during the corona panic and will selectively put money into the stock market for a year, diversified over time if targets are found.
A payment holiday can be obtained from many banks without fees due to the special situation.
This discussion has been had a bit on the Investment Loan forum. Primarily, payment holidays have indeed been granted, though not in all situations without a fee, as was the case for me. However, the expected return on that “loan money” was attractively calculated quickly. Hopefully, the calculations didn’t go wrong…
Is a student loan considered leverage, referring to the question above
In your answer, you wrote:
I have a problem because I can’t predict the duration of these stock market crashes or where the bottom might be. I’ve already bought a few reasonably priced and high-quality companies, though not from the Helsinki Stock Exchange but from Sweden, where there are more companies and choices. When looking at the Helsinki Stock Exchange, for example, the current prices don’t really account for a significant short-term drop in company earnings. Permabulls say that “time in the market beats timing the market”.
What portion of your investment assets do you allocate for “crazy days”? It’s a fantasy for many investors to be able to buy some quality company at P/B 0.5, as was sometimes possible during the dark moments of the 80s. But for this to happen, we would need to see a stock market crash for a reason that doesn’t affect companies’ long-term returns (otherwise the crash would be justified). Reasons could include the capitulation of pension companies or the collapse of the banking system. That would be a complete failure of the system and would certainly lead to unstable political conditions. Politicians and central banks will do everything they can to prevent this, and solvency regulations and other rules can be relaxed. Even debts can be forgiven. This is good and humane policy.
So, is there a basis to expect the system to collapse? I think expertise in social sciences is more useful here than mathematics.
Everyone probably has the same problem. The exceptions are those who don’t yet know that they don’t know. And of course, liars I certainly don’t claim to know when and where the bottom is. The truth will only become clear years from now. However, that doesn’t mean one can’t logically deduce when conditions are ripe for excellent investments and when they are not. In this, I somewhat disagree with the permabulls.
Actually none, because we were talking about investment loans and taking on debt leverage. That’s not fundamentally my investment capital; it would be debt on top of it. Of course, I like to have some cash and other investments besides stocks.
If it hasn’t become clear yet, I’m not some wild risk-taker 
At least not these days when there’s something to lose. To each their own style.
By “crazy days,” I didn’t mean a system collapse, especially since stocks wouldn’t be of much use then, and the decline in investment value would presumably be a minor concern amidst everything. Nor do I fantasize about 0.5x P/B ratios or similar figures. I think it’s worth looking for reference levels from the euro and financial crises, and then remembering that the world has changed quite a lot since those times.
However, it wasn’t many weeks ago that quality companies could be bought at what I considered an attractive risk/reward ratio. Fear dominated the markets, and we clearly saw so-called forced sales (debt leverage), and many on this forum announced they had completely emptied their portfolios. When selling indiscriminately, opportunities arise for stock pickers – the entire market doesn’t even have to be ridiculously cheap; it’s enough for a few companies to be. The financial crisis presented incredibly good buying opportunities (always easy to state in hindsight), and back then, the real economic crisis was smaller than what the coronavirus is projected to cause. So, this is genuinely an exceptional situation.
Therefore, I would not rule out the possibility that stock markets could still seek a new bottom significantly lower than before. I especially would not rule out the possibility of significant overreactions in individual companies. Market sentiment is a delicate matter, and a decline fuels further declines (just as a rise now fuels rises). So, it would be no surprise if extraordinary opportunities still opened up in the markets, even if it doesn’t seem like it right now, as central banks and governments are supporting the markets. In such a situation, I prefer to be prepared, especially since it doesn’t really cost anything.
I would also add that, so far, during the worst of the crash, there was no need for a loan as I had cash. Not that I would have probably taken it out anyway in that situation – since I really can’t predict the duration or bottom of a crash, I make moves by diversifying over time. In my opinion, that opportunity wasn’t so exceptional that I would have even considered all-in moves. Perhaps I should have, but we’ll know that later.
The purpose of this is just to say that I don’t take investment loans for stocks on light grounds. For many, it’s a normal part of investing, and it can be perfectly fine for them, but for me, using borrowed money now requires an exceptionally good buying opportunity. My primary goal is to ensure I’m in the game for the long term – and I also like to sleep peacefully at night 
That’s a good tactic. I’ve also thought a lot in advance about a strategy to ensure my purchasing power when stocks are cheap. Because then there’s an opportunity to make exceptionally good investments. If I succeed well in this, my portfolio will develop significantly better. I’ve come up with three tools for my toolbox.
The first is to keep some kind of cash buffer.
The second is an investment loan against a home (PKS - Helsinki Metropolitan Area).
The third tool to ensure purchasing power is to invest some capital outside of stocks. I have chosen real estate investments, which are liquid enough that capital can be transferred to stocks within a 3-6 month window.
This is the first proper crash I’ve been involved in, and now I’ve been able to implement this strategy in practice! 
Even though I normally use leverage (about 40% of the home’s value), this loan has been entirely tied up in other real estate investments, so my stock risk has remained very moderate. In times like these, when I buy a lot of additional stocks, my stock allocation naturally increases significantly.
I understand that not everyone is interested in this kind of tinkering, and it doesn’t suit everyone. However, I know that as a stock picker, I am completely mediocre, and that’s why I like to think about strategies (even unconventional ones) that can improve my returns through another route. My biggest advantage probably lies in being able to buy when fear prevails in the market. In the future, the plan is to develop and implement strategies for portfolio protection as well.
Great stuff from Juha today in Kinnusen jorinat!
In my recent ramblings, I tried to bring some clarity to what has happened in the last month and what is now being priced in the markets. I also shared my own view on the current market situation. It’s boring as heck 
PS. @Johannes_Sippola got there first, but I’ll let mine go with my own introductory words.
How do I follow a blog? And get a notification when a new blog post is published?
“Currently, however, there is more congestion on the buying side, even though the real economy is in unprecedented deep trouble and there is no certainty of a quick return. In my opinion, short-term optimism has exceeded the boundaries of realism, which makes me fearful again as the Q1 earnings season begins.”
I totally agree with this! Of course, it would be great if we were wrong about this and corona just disappeared from everyone’s daily lives before summer. It would be so wonderful that I wouldn’t even mind on a summer terrace that I was bearish at the moment, and didn’t buy. However, I haven’t seen any indication that this would happen, and therefore I see massive clouds in the sky for companies. I also interpret that companies themselves see things just as foggy regarding the duration and effects of corona - otherwise they wouldn’t have collectively refused to give any guidance for the future.
The ship is leaking, but because it didn’t sink immediately, people just moved with central bank elevators to the upper deck to chill, sat at white-clothed tables ordering champagne and delicious meals. Such a fright did make one hungry! I believe that from the kitchen will eventually come mainly liver casserole leftovers, or whatever happened to be available from the back of the cupboard. The leak itself hasn’t been fixed, so I’m not - no thanks - celebrating yet.
I also subscribe to this. The more hopeful the expectation for tomorrow turns, the greater the danger of disappointment. It is realistic to prepare for both better and worse scenarios, so that you don’t go all-in on either. If you buy SP500 now, and consider it a good buying opportunity in the short and medium term, you are betting on a very bright future.
If the real economy is in such a mess that it cannot be fixed quickly, even with central banks’ weapons, the sludge will eventually flow into the stock market as well. This is a real alternative, each one assesses its probability. I myself consider it quite significant, let’s say fifty-sixty
Especially in this situation, when exceptionally n o o n e can know, nor directly and decisively influence, how things will turn out (like changing into a vaccine or a medicine).
Of course, I’ve regretted things I’ve done in investing, but never yet those “mistakes” that couldn’t possibly have been known as mistakes at the time. Everything is relative to risk. Precisely for this reason, my hands are currently in my pockets regarding both sales and purchases. And for the same reason, I don’t believe I would regret not buying later. The situation regarding keeping those hands in my pockets can, of course, change quickly 
