Course index:
- Basic Concepts of Money and Personal Finance
Introduction to the value of money, the importance of saving, and spending control. - Budgeting and Financial Planning
Create a personal budget, manage income and expenses, and set financial goals. - Inflation and Purchasing Power
Explanation of how inflation affects the value of money over time. - Interest Rates and Time in Finance
Differences between simple and compound interest rates and their importance in investments. - How to protect your savings. Protect yourself from scams.
How to protect your money from the scams that abound today - Basic Savings Instruments
Explanation of savings accounts, term deposits, and how they work. - Introduction to the Stock Market
Basic concepts of the stock market and its role in the global economy. - Actions: What They Are and How They Work
Explanation of stocks, types (common and preferred), and how to invest in them. - Bonds: What They Are and How They Work
Differences between corporate and government bonds, and their importance in diversification. - Risk vs. Return on Investments
Concept of risk and how it affects investment choices. - Diversification and Creation of Basic Portfolios
Basic diversification principles to reduce risk in an investment portfolio. - What is an ETF and How Does it Work?
Introduction to ETFs (exchange-traded funds) and how they track market indices. - What is a Mutual Fund?
An explanation of mutual funds and their benefits for beginners. - Financial education for the family
All the information you need to make ends meet. - Economic Cycle and its Impact on Investments
How the stages of expansion and contraction in the economy affect investments. - Growth Stocks vs. Value Stocks
Learn about different types of actions and what to expect from each one. - Fundamental Analysis of Stocks
Explanation of how to analyze a company's value based on its fundamentals. - Basic Technical Analysis: Charts and Patterns
Introduction to basic technical analysis tools, such as trend lines and candlestick patterns. - Options: What They Are and How They Work
Basic concepts of call and put options and their uses in investments. - Futures: What They Are and How They Work
Introduction to futures contracts and their application in investment and speculation. - Introduction to Cryptocurrencies
What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies. - Blockchain and its Importance in Finance
How the technology behind cryptocurrencies works and their applications in finance. - Risks in Cryptocurrency Trading
Volatility, fraud, and regulations in the cryptocurrency market. - Leverage Principles and its Risk
What it means to trade with leverage and the associated risks. - Investor Psychology and Emotion Management
How emotions influence investment decisions and tips for managing them. - What is Algorithmic Trading
Basic explanation of the use of algorithms to perform operations in the financial market. - Financial Analysis of Companies
Introduction to basic financial statements and their interpretation for valuing companies. - Investing in Commodities: Gold, Oil, and Other Goods
How commodity investments work and their role in diversification. - Advanced Investment Strategies: Hedging and Derivatives
Introduction to strategies for managing risks through financial derivatives. - Creating and Managing a Complete Portfolio
Practical application of prior knowledge to build and manage a diversified portfolio.
Leverage sounds like something for financial geniuses, but it's actually quite simple. It's when you borrow money to invest more than you have., hoping to win a lot. For example, if you have 2,000 pesos, but they lend you 18,000 more, you invest 20,000. If everything goes well, you make a fortune. But if it goes badly, you lose everything and still owe the money you were given. It's like gambling with a loan that could leave you out on the street.
In Argentina, where silver is devalued every day and we're looking for ways to make it work, leverage seems like a way out. With inflation and the dollar continuing to rise, many are tempted to use debt to multiply profits.But be careful, if you don't know how to handle it, you could end up burned out. Let's take it apart step by step, with what the experts say, real-life cases, and even a quote from Archimedes that'll make you think.
How does leverage work?
Leverage is like turbocharging your investment. You use debt to amplify what you can put out of pocketLet's imagine you have 5,000 pesos and want to buy cryptocurrency. Without leverage, you buy 5,000 pesos worth of Bitcoin. But if you leverage 10 to 1, you borrow 45,000 pesos and now have 50,000 pesos to invest. If Bitcoin rises by 10%, you earn 5,000 pesos, which is 100% of your initial investment. A dream! But if it falls by 10%, you lose 5,000 pesos and owe the 45,000 pesos you borrowed.
Leverage multiplies everything: profits and lossesIt's like a high-stakes game where you can win big or lose it all in the blink of an eye. In Argentina, with such volatile markets, this can be a double-edged sword if you're inexperienced.
Leverage in the stock market: Stock Market Bond
When we talk about stock market guarantees in this case, it's not the same as the guarantee that the CNV requires from agents. Here, we're referring to when an investor borrows money using their stocks or bonds as collateral, or when they lend money to another investor. It's like leaving your car in the garage in exchange for a loan: if you pay, you get it back; if not, they keep it. In Argentina, where the stock market is an option for making money go further, this is widely used, but it comes with its risks and tricks.
Think of it as a system where you move money around the market, using what you already have as a backup. It's common on the Buenos Aires Stock Exchange, and it allows you to invest more without taking money out of your pocket. But be careful, if you don't know how to use it, you could end up losing everything. Let's take a step-by-step look at it, with examples and a local twist.
How does borrowing money as collateral work?
The idea is simple. You use the stocks or bonds you own as collateral to request a loan. For example, you have 100,000 pesos in YPF shares. A broker or platform lends you, say, 50% of that value (50,000 pesos), using your shares as collateral. With that money, you can buy more shares or invest in something else.
The broker gives you the loan because he knows that if you don't pay, he can sell your shares to recover what he lent you. In Argentina, this is done on margin, and the rules depend on the stock market and the risk of the assets. If the shares go up, you earn more; if they go down, you can lose everything and still owe.
And lend money with collateral?
You can also be the lender. An investor with plenty of money can lend to another, using the borrower's shares as collateral. For example, you have 200,000 pesos in your principal account and pledge it for 1, 7, or 30 days (the most common terms). Another person pledges their shares as collateral, temporarily keeping your money, and at the end of the term, you collect your money plus interest.
The risk is if the borrower doesn't pay, which is extremely rare. If the stock falls in value or the market crashes, the brokerage firm will sell the debtor's assets to return your money.
The capacity of stock market instruments
An important concept comes into play here: the margin of a stock market instrument. The margin is the percentage of the value of an asset (such as stocks or bonds) that a broker or lender considers valid for granting you a loan. They won't lend you 100% of the value of your instruments because they're at risk of falling in price. For example, if you have YPF shares valued at 100,000 pesos, the margin could be 80%, so they'll lend you up to 80,000 pesos.
The margin depends on the instrument. Shares of large, stable companies (such as YPF or Mercado Libre) have higher margins, say 70% or 80%. Argentine Treasury bonds may have slightly higher margins. Risky instruments, such as shares of smaller companies, have lower margins, such as 40%, because the broker doesn't want to be stuck with something that may be worthless.
In Argentina, the loan capacity varies according to the market. With inflation and devaluation, the CNV and brokers adjust these percentages to keep the system from going haywire. If the loan capacity is low, they lend you less, but you're more protected. If it's high, you can borrow more, but the risk of losing increases.
Advantages of stock guarantee
Borrowing or lending with collateral has its advantages. First, it allows you to invest more without selling what you have. If you have shares in a company you want to keep, you can use them as collateral instead of getting rid of them. Second, you generate income if you lend. Earning interest is like a bonus without having to leave your chair. It's even safer than a fixed-term deposit.
Thanks to the margin, you can calculate how much you can borrow. If you know your shares have a margin of 70%, you can better plan your investment. In Argentina, where the peso is losing value, this is a way to take advantage of the stock market without depending on the bank. If you play it right, you can earn more than with a fixed-term deposit.
Regulation in Argentina
The CNV regulates this, but it's not as strict as it is with brokers. Brokers have to follow rules for margins and margins, such as how much they can lend based on the value of the assets. In 2023, with high inflation, the CNV adjusted margins to prevent people from going bust.
The problem is that not everyone understands the margin call. Many leverage their funds without realizing that the percentage can drop if the market moves, and when the margin call comes, they find themselves with debts they can't pay.
Real cases of problems
Leverage with caution and margin has taught hard lessons. In 2020, an investor from Buenos Aires borrowed 300,000 pesos using Petrobras shares as collateral, with a margin of 70%. The price plummeted due to the pandemic, and the value dropped to 150,000. The broker sold, but owed another 150,000 pesos, and had to sell his car to get out.
Another case occurred in 2022. A woman from Córdoba lent 200,000 pesos to a friend, who invested in shares secured by the 60%. The friend lost everything, and the shares were worth 80,000. She lost 120,000 and cut ties with him. In Argentina, these tragedies are more common than we think.
How to start with caution?
If you're tempted to try, start small and with a reliable broker. Platforms like Balanz or Inviu explain how to use margins and collateral. Don't put everything at stake: use only a percentage of your assets as collateral. And always read the terms: know how the collateral affects your loan if the market falls.
In Argentina, where the stock market is a challenge, consult with someone who knows. A financial advisor can guide you so you don't make a mistake.
Warren Buffett and the three L's
Warren Buffett, the American millionaire who knows a lot about investing, always warns about the dangers of leverage. He quotes his partner and friend, the recently deceased Charlie Munger, who said that there are three ways an intelligent person can ruin themselves: liquor, ladies, and leverage.Let's see what each one means, although Munger clarified that he included the first two for fun because they begin with an L; the real issue is leverage.
- Liquor: It refers to things like alcohol or drugs that cloud judgment. Buffett says that when people start making money, they sometimes get lost in partying and lose focus.
- Ladies (women): It talks about personal distractions, like relationships that take you off track. It's not an attack, but a warning about losing control.
- Leverage: Here is the key point. Using debt to invest can destroy you if you don't know how to manage it., because it amplifies errors.
Buffett explained it in an interview with CNBC: "My partner Charlie says there are only three ways a smart person can go bust: liquor, ladies, and leverage. He actually added the first two because they start with an L, but the real problem is leverage."He also said it's crazy to risk what you have for something you don't need. In Argentina, where we sometimes rush headlong into shortcuts, this resonates strongly.
Expert opinions
Buffett isn't the only one talking about this topic. Several financial experts have interesting opinions on leverage.Let's see what they say.
Santi Puig, an investment guru at Investing.com, compares leverage to a knife. “It’s useful if you know how to use it, but you can cut yourself if you’re not careful.”Puig says it's for experienced investors, not novices, and that in Argentina, with the economy so unstable, you have to proceed with caution.
AQR Capital Management, an investment firm, analyzed how Buffett uses leverage. In a study called Buffett's Alpha, they say he does it safely, using his insurance money as an interest-free loan. “Leverage can work if you have a solid system, but it's a mistake for most people.”, they conclude. This shows that it's not impossible, but it does require a lot of knowledge.
James Montier, a financial analyst, goes harder. “Leverage is a trap for those who want to get rich now.”Montier believes that impatience leads to ruin, and in Argentina, where we're all looking for the easy way out, this is a warning sign.
Ferran Gallo, another expert, says that leverage is for big companies, not for ordinary people. “Companies use it with risk management teams, but an individual can go bankrupt if he or she doesn't know.”In our country, with volatility, this is key.
Leverage in sports betting
Leverage isn't just a feature of stocks and cryptocurrencies, it's also a feature of sports betting. In Argentina, with the online betting boom, some are leveraging their bets to increase.Let's go with a case.
Let's think about Carlos, a 25-year-old Boca fan from La Plata. You have 5000 pesos to bet, but he sees that Boca is playing against a weak team and the odds are good. He borrows 20,000 pesos from a friend and bets 25,000 that Boca will win. If they win, he takes 37,500 pesos, pays the 20,000, and is left with a profit of 17,500. A great goal! But the match ends 0-0, Boca doesn't win, and Carlos loses the 25,000. Not only did he lose his money, but he owes 20,000 that he doesn't have.He ends up asking his mom for money and selling his PlayStation to get out of the mess.
Leveraged betting is a brutal riskBecause football is unpredictable. In Argentina, where we all believe our team is unbeatable, many fall into this trap.
Real cases of people who melted down
Misused leverage ruined a lot of people. Here are two true stories about fades..
The case of Pablo, the crypto trader:
Pablo, a 27-year-old kid from Córdoba, got hooked on crypto in 2021. I had 80,000 pesos saved, but he wanted more. He leveraged himself 20 to 1 on an exchange, borrowing 1,600,000 pesos to buy Ethereum. When he bought it, Ethereum was at $4,000, and he expected it to rise to $5,000.
But Ethereum fell to $2,000 within weeks. Pablo lost his 80,000 pesos and owed 800,000 to the exchange.He couldn't pay, mortgaged his parents' house, and now works as a delivery man to get out of the hole. He says leverage was his worst mistake.
The case of Ana, the real estate investor:
Ana, a 40-year-old woman from Rosario, wanted to invest in properties. He had 300,000 pesos and asked for a loan of 1,200,000 to buy an apartment.He thought he would rent it out and pay off the debt with the profits.
But inflation raised costs, tenants defaulted, and the apartment's value fell. Ana couldn't pay the loan, and the bank took her apartment.He was left with a debt of 600,000 pesos and nothing. He now works in a call center and regrets having leveraged himself so much.
Archimedes' phrase
Leverage has ancient roots. Archimedes, the Greek genius, said, “Give me a lever and I’ll move the world for you.” This quote speaks to the power of leverage: with the right leverage, a tiny force can move something gigantic. In the financial world, leverage is like that lever: it can give you a huge boost if you use it well. But if you don’t have the necessary support (knowledge, strategy), it can crush you.
When to use leverage?
Not everything is bad with leverage. If you know what you're doing, it can be helpful.Large companies use it to grow. For example, a factory that needs a new machine can take out a loan, buy the machine, and pay off the debt with the profits. That's leverage done right.
For ordinary people, it is more complicated. Experts say only leverage if you have experience, a solid plan, and can handle the losses.In Argentina, with the economy so crazy, it's even riskier. If you want to try, start small and with something you're good at.
Tips to avoid going bankrupt
Finally, some practical advice. Don't use money that you need to live, like rent or food. Start small, like 1,000 pesos, and study before you go too far. Have a plan BIf you lose, how do you pay off the debt? Don't let greed get the better of you, and use reliable platforms.
In Argentina, where everything changes quickly, leverage requires more care than elsewhere.Buffett, Pythagoras, and the experts agree: use it wisely or it will cost you.
Next course date
Questions for you to reflect on
Is it worth risking what you have for what you don't need?
In what cases could it be positive to go into debt?
Why can a deposit guarantee be an interesting alternative to a fixed-term deposit?
A brief overview of The Pocket Investor
The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.
The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.
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