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.


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.

I can now enjoy a hefty return on it. Although, not sure until when!

My Chipotle Mexican Grill holding is up 127%.

Chipotle’s Stock Performance using Margin

I was able to replicate the same tactic on Nike (NKE). Nike is up 71%.

Nike Stock Performance Chart
(Source: Google Finance)

Nike’s Stock Performance using Margin

Final Thought

I keep reading that trading in margin loan is bad. As far as performance is concerned, I think it is not as exciting as it sounds.

Also, margin buying only works when the market is moving upward. When the market swings downward, it will sweep everyone with no mercy.

There is no science to the above tactic. It only works looking back!

Disclaimer: Long position on Nike and Chipotle.

Suggested Reading

1 Comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s