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The Thoughtful Investor

When And How To Leverage And When Not To?

A leveraged portfolio in a falling market is like a hand grenade with its pin pulled out.

The chapter discusses leveraging and why it may be an important part of investing. The types of filters to use when leveraging a portfolio, as well as the precautions to take in the event of a market decline.

The author advises to leverage only if there are alternate avenues of income.  Alternative source is essential so that the investor does not have to sell his shares off to repay back the loan.


The quantum of leverage should be limited to:- 

  • 20% of the post leveraged portfolio value.
  • the amount of surplus which the investor can generate from his alternate sources of income over a period of eighteen months from the date of loan.

The author says that leveraging is not suited for investors who desire to invest on cyclical turnarounds, illiquid small caps which are not sector leaders or stocks which have no yield protection.

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Units 27/28