Rational Advisor

There’s been a lot of talk about the Smith Manoeuvre, and leverage and how it works in your favour. Much of the investors talking about this only show you the upside, and the interest deductibility. Without showing the downside.

Yes, leverage can work well, as long as the understanding is there, that the markets are volatile. Remember Leverage multiplies losses as well as gains.

Leverage maginfies outcomes but doesn’t necessarily add value. it will make for higher highs, and lower lows, and it might even produce an increase in the expected value. But it can’t make something a fundamentally better investment. If something is poor to invest in, it won’t become better just because it is leveraged, or uses loeverage - just ask Bear Stearns infamous hedge fund managers.

Remember every investment or portfolio entails a variety oof risks, and it’s oveerall risks is the sum of these risks. There is specific company ris, market risk, liquidity risk, legal risk, currency risk and political risk jsut to name a few

Investment safety doesn’t come from doing safe things, but from doing things safely. ASnything can be screwed upo by using so much leverage that its fluctuations can’t be survived or tolerated by the investor. Someone smart once wrote about the famous investment Nobel prizers who ran LTCM into near bankruptcy

Leverage + volatility = dynamite

Rational

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