Sell shares to overpay mortgage?

[DublinHead54]

do you not agree?

Well?

It's not a "belief" - it's a fact.

Well, your "opinion" is nonsense in that case.

It's like being of the opinion that the earth is flat.

Ahh Sarenco, I see what you are doing. Lets ignore the question and make an irrelevant statement to discount the point.

The fact is using free cash flow whilst having a mortgage is not the same as borrowing to invest in equities, because when you take out a mortgage you take it out at the total cost (loan amount + interest = total cost). By investing in Equities you do not increase the cost of your mortgage. Can you show me a mortgage document that does not quote the total cost of the mortgage inclusive of the interest before you sign the contract?

Now that is a fact. /end

P.s based on previous you will feel the need to support your argument by making up scenarios that fit your argument but are not real world scenarios, please don't.

 

[RedOnion]

because when you take out a mortgage you take it out at the total cost (loan amount + interest = total cost). By investing in Equities you do not increase the cost of your mortgage. Can you show me a mortgage document that does not quote the total cost of the mortgage inclusive of the interest before you sign the contract?

Now that is a fact. /end

And if you repay the mortgage early what happens to that interest?

 

[Sarenco]

You are envious are dismissive of Cardanos success by claiming it is luck. I am not sure if this is because you are envious of his financial gains or because he hasn't followed exactly the rules of some investment book you read. The notion that his success can only not be luck if they can repeat it is also nonsense

It has nothing to do with envy.

Cardonos himself told us that his investment decisions are grounded in the principles espoused by Ben Graham - I didn't bring it up.

The intelligent Investor by Ben Graham is my constant reference

Ben Graham was the father of value investing. Tesla is the ultimate growth stock and nobody would ever invest in Tesla by applying the principles advocated by Graham.

Cardonos clearly liked Tesla's technology and took a punt on the stock. And that decision has obviously paid off big time.

But that decision had nothing to do with a fundamental analysis of the stock price, as per Graham's methodology.

Or to put it another way, he got lucky.

 

[Sarenco]

The fact is using free cash flow whilst having a mortgage is not the same as borrowing to invest in equities, because when you take out a mortgage you take it out at the total cost (loan amount + interest = total cost). By investing in Equities you do not increase the cost of your mortgage. Can you show me a mortgage document that does not quote the total cost of the mortgage inclusive of the interest before you sign the contract?

Sorry but that is just pure waffle.

We have already explained to you why investing while carrying debt is the same thing as borrowing to invest. I'm sorry if you cannot understand the examples that have already been provided.

 

[NoRegretsCoyote]

I said my risk tolerance is now much lower

Which is an admission that you got lucky.

If you were that good you would surely take your €3m, re-allocate according to same principles, and have €30m in four years.

 

[Sarenco]

Those fundamentals i.e. advanced technology and development have proved to be true.

Fundamental analysis is employed by a value investor to determine whether a stock is overvalued or undervalued.

Liking a company's technology does not constitute fundamental analysis.

You took a punt on Tesla and it paid off - good for you.

But it had nothing to do with a fundamental analysis of the stock price.

 

[Gordon Gekko]

I’m not sure where people’s blindspot comes from in relation to mortgage debt.

Perhaps it’s a form of mental accounting?

Yes, mortgage debt is secured against real property, but if you have other personally-held assets, that doesn’t really matter. Investing whilst carrying debt is effectively borrowing to invest.

 

[DublinHead54]

And if you repay the mortgage early what happens to that interest?

I regret that what seems to often happen is that a poster will change the topic slightly and then that becomes the discussion......

The original two points being discussed here was that using cash to invest in whilst having a mortgage is the equivalent of borrowing to invest. The second point was the ability of investing in the market to beat the interest saved on paying down the mortgage.

It was always accepted that paying off or overpaying reduces the balance and interest owed. But what is a fact is that when you take out a mortgage, you take it out at a rate and are told over the lifetime the total cost. So the cost to you is loan + interest, correct?

In my view if I take 100 euro from my pocket and buy an equity whilst having a mortgage my debt does not increase. Thoughts?

Ultimately there are those that have their own approach to managing their financials and I have my own methods, just like there are many investment strategies. In how I view risk in the current economic landscape alongside my own specific situation, I believe it is beneficial to invest some of my portfolio in the stock market (currently predominantly via AVCs) and then in individuals stocks directly. This appears to have worked for me in the last 10 years, as it has for other posters here.

 

[PGF2016]

Those fundamentals i.e. advanced technology and development have proved to be true.

Having advanced tech and development doesn't guarantee Tesla like performance. I still believe there's a large element of luck involved in your Tesla investment and your crypto gains.

But your overall approach is to be commended. Mostly conservative with a few punts (in my opinion) that turned out very well. Congrats.

You're an outlier though and I would still be of the opinion that most should not 'borrow to invest'.

 

[Steven Barrett]

You’re looking at the change in positions rather than the positions.

Person 1 has €200k of mortgage debt and €200k of investments.

So does Person 2.

The flipside is that Person 2 could become Person 1 by repaying the mortgage.

If you have personal investments and you are carrying debt of any kind, you are effectively borrowing to invest which, with our tax code, doesn’t really make sense.

A few crypto or Tesla warriors won’t disprove that.

This word effectively is popping up a lot. Which is not the same as actually.

Your view of the argument:

€200,000 mortgage. I save up €200k and invest it in shares. You say that is effectively borrowing to invest because I am not using the savings to pay down debt. The cost is therefore the interest on the loan.

My view of the argument:

€200,000 mortgage. I get a second loan for €200k and invest it in shares. My debt to a bank is now €400,000. My mortgage is secured against my home and my other €200k is secured against


Steven
www.bluewaterfp.ie

 

[DublinHead54]

It has nothing to do with envy.

Cardonos himself told us that his investment decisions are grounded in the principles espoused by Ben Graham - I didn't bring it up.

Ben Graham was the father of value investing. Tesla is the ultimate growth stock and nobody would ever invest in Tesla by applying the principles advocated by Graham.

Cardonos clearly liked Tesla's technology and took a punt on the stock. And that decision has obviously paid off big time.

But that decision had nothing to do with a fundamental analysis of the stock price, as per Graham's methodology.

Or to put it another way, he got lucky.

So investing in growth stocks is a punt and if it works out its just luck? All those equity analysts that are recommending buys and sells on growth stocks are just punting and getting lucky? An entire industry might as well just pack up and go home.

You seem to be very wedded to one methodology and if somebody doesn't follow it exactly or misspeaks you use that to discredit their success. What Cardano said was he used Graham as a reference along with the huge online data, he didn't say he used Grahams methodology to pick Tesla.

You do know that Grahams methodology is not a guarantee, his methodology would suggest that there is value in buying bank shares that traditional trade below book value but you'd find it a hard sell trying to get people to invest in those businesses.

 

[skrooge]

All this wonderful and dispassionate financial advice. I'm trying to come up with a middle ground that we can all agree on... If I take a little from the hawks and a little from the doves I think I've come up with the perfect compromise..... How about equity endowment mortgages....

There everyone happy and nothing to worry about

 

[DublinHead54]

I’m not sure where people’s blindspot comes from in relation to mortgage debt.

Perhaps it’s a form of mental accounting?

Yes, mortgage debt is secured against real property, but if you have other personally-held assets, that doesn’t really matter. Investing whilst carrying debt is effectively borrowing to invest.

In reality it isn't and your examples have proven that....

However, the point that is now proved by 3 posters is that you can beat the guaranteed return of overpaying a mortgage.

 

[PGF2016]

However, the point that is now proved by 3 posters is that you can beat the guaranteed return of overpaying a mortgage.

But that's not what those who disagree are saying. Of course it's possible to beat the guaranteed return of overpaying a mortgage. But the argument is that for most people that doesn't happen and overpaying is probably the best / least risky course of action. A few outliers doesn't disprove that.

 

[DublinHead54]

Sorry but that is just pure waffle.

We have already explained to you why investing while carrying debt is the same thing as borrowing to invest. I'm sorry if you cannot understand the examples that have already been provided.

I'm sorry you haven't explained it, I am astonished that you think you have explained anything. You have not explained anything, all you've done is make up unrealistic examples that can't be replicated in the real world and refused to answer questions after being asked twice!

Please explain how using free cash flow to invest in equity, incrementally increases a mortgage debt given that a mortgage is contractually agreed as the loan amount plus interest over the lifetime?

 

[Gordon Gekko]

This word effectively is popping up a lot. Which is not the same as actually.

Your view of the argument:

€200,000 mortgage. I save up €200k and invest it in shares. You say that is effectively borrowing to invest because I am not using the savings to pay down debt. The cost is therefore the interest on the loan.

My view of the argument:

€200,000 mortgage. I get a second loan for €200k and invest it in shares. My debt to a bank is now €400,000. My mortgage is secured against my home and my other €200k is secured against


Steven
www.bluewaterfp.ie

Effectively is just a word to appease any pedants out there.

It would be the same to inherit €200k, clear one’s mortgage, then remortage for €200k and invest that in shares as it would be to just use the inheritance to buy the shares.

 

[DublinHead54]

But that's not what those who disagree are saying. Of course it's possible to beat the guaranteed return of overpaying a mortgage. But the argument is that for most people that doesn't happen and overpaying is probably the best / least risky course of action. A few outliers doesn't disprove that.

I have to disagree with you that these people including myself are outliers. The absolute size may put them as outliers, but the percentage returns are not outliers.

You don't have to be a genius to invest wisely, the posters here have been talking about investing in household names or industry stalwarts with billions in revenue, not some penny stock.

In the last 5 years everybody who invested in an S&P 500 the stock market would have beat the return on their mortgage , so beating the guarantee is not an outlier.

What was put out there was that it was statistically unlikely that you can beat the guaranteed return, but that just shows that statistics can suffer from confirmation bias. @Sarenco selected statistics to support their side of the argument and I just picked a statistic to prove mine.

What you correctly point out and what has been my point all along, is that it is about Risk. Fundamentally Equities are a riskier asset class than rates and you expect a return premium over the risk free rate for taking that risk, thats how the market works. If Equities offered a return less than the risk free rate then nobody would invest in them.

This is why individuals have a risk tolerance / risk appetite and to go back to the very original point....you should not offer just blanket advice not to invest when you have a mortgage. There are many other inputs that should help an individual form a decision on whether to invest or not. However, most posters on here go for a simple risk averse approach and pay down the mortgage. That isn't because of lending to invest, they just have a low risk tolerance or a simple approach to managing their finances.

However, you can't deny that some investors on here that have higher risk tolerance, have achieved greater returns and some have not. Thats the way it should work......

 

[Sarenco]

Looks like your investing principles are based on Rory Gillen's 3 steps rather than Ben Graham's. Or maybe Dave Ramsey??

None of the above.

I just invest through boring old index funds - I don't attempt to pick stocks.

 

[DublinHead54]

Effectively is just a word to appease any pedants out there.

It would be the same to inherit €200k, clear one’s mortgage, then remortage for €200k and invest that in shares as it would be to just use the inheritance to buy the shares.

I'd love one of those mortgages which doesn't cost anything to put in place or clear. Can you give me the name of your solicitor that does it for free? Would you clear the mortgage if the interest rate was 0%?

I honestly can't believe you only make decisions in either ors.....

 

[Gordon Gekko]

I'd love one of those mortgages which doesn't cost anything to put in place or clear. Can you give me the name of your solicitor that does it for free? Would you clear the mortgage if the interest rate was 0%?

I honestly can't believe you only make decisions in either ors.....

Ah, our old friend pendantry.

“effectively”