ataraxia's Net Worth for February 2021

Assets Value Change ($) Change (%)
Cash $1,712,801 $579,801 51.17%
Stocks $1,418,215 ($1,214,238) (46.13%)
Bonds $2,856,095 ($263,956) (8.46%)
Annuities $0 - -
Retirement $0 - -
Home $1,012,811 $12,811 1.28%
Other Real Estate $0 - -
Cars $0 - -
Personal Property $0 ($130,000) -
Other Assets $198,275 $168,275 560.92%
$7,198,197 ($847,307) (10.53%)
Debts Value Change ($) Change (%)
Home Mortgage(s) $0 - -
Other Mortgage(s) $0 - -
Student Loans $0 - -
Credit Cards $7,794 $6,094 358.47%
Car Loans $0 - -
Other Debts $1,884,743 ($1,761,257) (48.31%)
Total Debts $1,892,537 ($1,755,163) (48.12%)
Net Worth $5,305,660 $907,856 20.64%
*All values shown in USD ($)
It's been a while. So to explain for anyone viewing and maybe to think out loud for myself.

Large Cash position
this is mainly because I sell covered calls on my stocks. As the market has gone up a lot, these covered calls were eventually assigned to me forcing me to sell out of the stock at the strike price. This reduced my stock position by quite a lot and ended up having me remove some of the equity leverage I had in my equity account. So you can see, other debt (which is investment financing) when don't the most significantly along with the total asset size.

I don't immediately buy stocks once I get back the cash, I go around on the other side and sell put options. If the stock continues to go up and I don't get assigned, I get a decent return on the cash that secures the puts in the event they stocks go against me. When they do go against me, I am forced to buy the stock, I do this on stocks I would have bought anyway - so being forced to buy isn't that bad. I get in at a lower price than if I had bought it when I sold the put option, and I get the option premium further reducing my cost of owning the stock. The total premium I collected in the last year doing this was about 380,000. It wasn't all gravy though, many times I got called out of stocks I would have rather just owned that returned more than the premium I collected.

I am considering grossly simplifying this activity though to focus on my business. I am also considering paying down my other debts by selling off the bond component. Currently it's enticing to hold due to the fact that the bonds pay about 2-3% while the interest I'm charged is only 0.15%.

This comparison shows not much difference in projected net worth and in fact a lower chance of success if I do so.

Additionally, the portfolio risk is actually higher when I'm primarily in equities as opposed to borrowing money to invest in fixed income. In other words, the riskiness of borrowing money to invest is offset by the fact that bonds are inherently less risky than equities.

If anyone has any insight on what they would do in this position would love to hear from you. Just FYI, I cannot borrow at this 0.15% rate to invest in equities, that's purely based on the fact that that borrowing is secured by the investment grade bonds.


3/25/2021 8:05:09 PM labangel
Firstly, nice to see you back! Where are you getting the loan for the bonds from? I've heard others use IB for margin stock investments and am considering opening an account with them. Also, is this a fixed or variable rate loan, and how long will the 0.15% rate last? Vs. what are the typical maturities of the bonds you're holding? In general I would feel comfortable borrowing at lower rates to invest in higher rate bonds like you are doing if the interest rate is steady for a few years.
4/6/2021 2:43:37 PM ataraxia
IB in general is great and I sometimes go into margin on equities there, but for the bond financing it was a promotionally "locked in" rate of LIBOR + 0. The actual TnC say it's subject to review, but the relationship manager has told me that that's the spread I'm locked in at with the exception of if LIBOR goes negative, at which point the floor is 0%. It's also a use it or lose it line, so if I pay it down and want to draw on it again, I think at that point it would be LIBOR + 1.25%, so I'm not keen to pay it off. I got it from Citibank Private Client. The bonds are investment grade and at this point have about 2-5 years left on them, portfolio duration is about 3.17 years. Yield is actually looking like low 2% or high 1%, so really diminished value in holding were it not for the cheap loan. Most of them are trading at slightly above par.
4/8/2021 1:19:06 AM labangel
I would continue the loan based on what you describe.