Margin Trading Strategy For Retail Investors

It is hard to beat the market performance. There are very few investors who have actually achieved this feat over a long period of time. Despite the difficulty of this task, like so many other retail investors, I have a constant desire for better performance.

When your capital is 100% deployed in the market and you see some better opportunity. What do you do?

Well, the obvious answer is buying in the margin. You borrow money to buy stocks and pay interest in return.

This sounds like a sensible thing to do; however, it is not a prominent way to go.

Nevertheless, after trying out many possible margin buying tactics, I have found a pragmatic way. Or maybe it was just a bit of stroke of luck.

Strategy

Here is what I did with Chipotle Mexican Grill (CMG).

Chipotle Mexican Grill caught my attention when its stock price plummeted because of its food contaminated with salmonella. Given that I am a fan of Chipotle’s rice bowl myself, I thought it will get over the situation and I bought its stock in margin.

The goal is to buy at the bottom and make a handsome profit.

The stock kept sliding. I kept cool and I bought more in margin.

The stock hit the bottom in 2018 and I bought more. Again, in margin.

I have to pay interest for that borrowed money during all this time.

And, finally, the stock rebounded and I sold the first two purchases in a little profit but it was a break-even after deducing the margin interest.

Chipotle Stock Performance Chart
Source: Google Finance (Improvised)

It panned out well. However, it took me a good three years to execute the complete plan. In fact, it is a normal time for a company to rebound. Though, it feels like a decade for short term investors.