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Margin Calls Explode; Conservative and Moderate Investors Take Inappropriate Risks
Margin calls to investors dramatically increased on August 27, 1998, due to the substantial losses in the market. For example, Charles Schwab stated that it issued 3 times to 4 times more margin calls than it would on a normal down market day.
Yesterday's plunge brings the year to date Russell 2000 return to a 16% loss. The DJIA is up 3%. The S&P 500 is up 7.44%. However, these are averages. Several stocks, now across the board, have suffered significant losses, as reflected in the increased number of margin calls.
Investors purchasing stocks on margin, that is, with borrowed cash, need to be careful. Can they withstand the losses? Only aggressive investors who can bear substantial risks should be on margin. Brokers that tout "buying power" to conservative and moderate risk investors are exposing them to inappropriate risks.
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
All content Copyright © 2008 Advocate Capital Management, Inc. except where noted. All rights reserved.
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