$$$ KPO and CZM $$$: Biggest Losses in a Day + Start of Leverage

Tuesday, March 17, 2020

Biggest Losses in a Day + Start of Leverage

It has been a pretty interesting day today. Despite the Fed cutting interest to 0%, the market ended up falling further (usually/previously, the REITs would be green).  It was by far the largest losses (-$25k) we experience in a day and in our investment journey since 2014. We have also decided to activate our leverage account which I blogged about 2 years ago - Leverage - A Double-Edged Sword.

Although the market has fallen >20% since the start of the year (2.5 months), this has essentially wiped out all our gains built up across the years. We are sitting on a net loss of -$33k after 6 years of investing. Yes, we will be better off simply by putting our money in the bank account but this is just temporary...

Want to make a guess how much we lost in total since the start of the year?

20% of our portfolio is about $100k and we have lost $112k in just 2.5 months. So what would you do? Closed all positions and hold cash cause the crash is coming? Of course not! I think one of the worst things that one can do now is to panic sell now.

Look at how much capital we have pump in till date. Anyway, we had already planned for this and we will stick to it. We borrowed/took a loan through SCB secured wealth leading, SGD $20,023.39 @ 1.3% (fixed) + 1.5% (floating - 1 month sibor) and EUR $4,410.35 @ 1% (fixed) + 0% (floating - negative interest). The plan is to use the dividends to pay off the interest and keep the difference. Sounds easy right? How safe is it?

We have pledged about $120k worth of stocks. Based on our calculation, the market/our portfolio needs to fall by another 70% before it triggers the margin call/top-up scenario. Only time will tell if we made the correct decision!

On a side note, we will also be increasing the amount of investment to StashAway and Endowus monthly. Best not to withdraw or change the risk profile during this period of time and simply continue to invest the same amount or increase the amount.

The market will most likely continue to fall but we will never know when is the bottom. Most will prefer to hold cash and wait but we prefer to enter as long as the price/yield is right. Regardless, stay safe and invest safely!

Keep a lookout for our portfolio updates to see what we have been buying!

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  1. need to know that price action of the market now, best is NOT to leverage. No joke my friend. Do not use leverage! May kill you.

    1. Hahaha. Thanks for your kind words. In my opinion, it's the same as telling a company not to take loan because it may bankrupt the company. End of the day, it is all about using it efficiently (e.g. WACC - https://www.investopedia.com/terms/w/wacc.asp).

  2. leverage on the way up. why leverage on the way down?
    this is a move that is too risky in my opinion.
    average down on a pandemic triggered economy crisis might not be a good option, waiting for a clear solution on the root cause is a better indicator of a potential rebound. ride the wave up then.

    1. Hi honest_me,

      It is just part of our strategy to use leverage as our war chest/fund. It is indeed risky but if managed properly, it will be fine. Buying property is also considered as a form of leverage right?

      Anyway, to put things into perspective, our "gearing ratio" is only 6%, still far from MAS limit. lol.

  3. Why folks like to compare leverage on hard asset like property to soft asset like stocks? Good luck if you it is the same type of leverage.

    1. Hi CreateWealth8888,

      Learn some new terms from you today. Hard and soft asset but would you like to elaborate more on the difference?

      Honestly, I do think it is the same type of leverage which simply just means taking on debt - https://www.investopedia.com/terms/l/leverage.asp

    2. Hard asset like property will not go down to zero and the bank doesn't care whether the market value of our property crash or not as long we pay our mortgages on time. We don't get margin call to top up by end of the day or else forced selling when the market value of our property crash in bad time.

      Can we negotiate with our brokers for margin calls?

      Some time folks have to learn through the hard way. Me too! I remembered my friendly broker called me in the morning and then called again around 4 pm to pay up or else the system would do forced selling the next morning. :-(

    3. I see. Thanks for sharing your experience!

      As long as we don't over-leverage and ensure that the portfolio will never get margin call then it will be fine :)

    4. Never say never get margin call on your leveraged portfolio.

      Just hope that market doesn't crash to AFC level in 1998.

      We don't over-leverage but market forced us to be over-leveraged for margin call or cut losses. Just read one investment Trainer just cut losses on his leveraged account and feeling angry.

    5. Hahaha. You are referring to Chris right? I read that post of his too. He sold his winning stocks to prevent a margin call so technically I wouldn't call that cutting losses and the leverage he used compared to us is far more too.

  4. Would you be so kind as to share with us a copy of your leverage excel spreadsheet via Google Sheets for our reference?

    1. Hi Gerard,

      Apology on taking so long, need to find time to replicate it out. Here you go - https://bit.ly/scbleveragecalculator

      Do note that the leverage calculator is based on what my bank (SCB) offers with LTV of 70% and different margin call levels. You will have to change the formula accordingly to fit your own needs.

      Hope this helps!