Portfolio maintenance margin over the years

ZoomerInvestor · Nov 12, 2020

As someone new to PM at IBKR I wanted to get some historical perspective on what maintenance margin requirements have been over the years, especially during peak meltdown periods. I have been trying to evaluate if its reasonable to leverage up 3x with an entirely set it and forget it buy and hold portfolio and never be margin called. Is maintaining a 2.5-3x leverage ratio going to keep me within the margin of safety for a 50% drop, or does this amount of leverage in a passive portfolio sound entirely unsustainable? Is there a leverage ratio such as 2x that this would make sense at? I understand the PM algorithm rewards highly diversified portfolios with considerable amounts of individual holdings, so for this example lets assume my portfolio is moderately diversified in the eyes of the algorithm. I know margin requirements are highly dynamic so I'm just looking for whether this strategy intuitively makes sense or is absolutely insane

horizon · Nov 12, 2020

It is best to analyze the portfolio using beta weighting. And keep the buying power at 50% or 70% depending on your risk tolerance.

Apologetik · Nov 12, 2020

The way I think about it (probably wrong) is I lever down at market highes and increase leverage as the market declines. I also am not worried about leaving cash on the table.

David's faith · Nov 13, 2020

The thing on Margin is - it drops when the market drops. When you need it you don't have it.

Daal · Nov 13, 2020

ZoomerInvestor said:
As someone new to PM at IBKR I wanted to get some historical perspective on what maintenance margin requirements have been over the years, especially during peak meltdown periods. I have been trying to evaluate if its reasonable to leverage up 3x with an entirely set it and forget it buy and hold portfolio and never be margin called. Is maintaining a 2.5-3x leverage ratio going to keep me within the margin of safety for a 50% drop, or does this amount of leverage in a passive portfolio sound entirely unsustainable? Is there a leverage ratio such as 2x that this would make sense at? I understand the PM algorithm rewards highly diversified portfolios with considerable amounts of individual holdings, so for this example lets assume my portfolio is moderately diversified in the eyes of the algorithm. I know margin requirements are highly dynamic so I'm just looking for whether this strategy intuitively makes sense or is absolutely insane

You might get away with 1.2-1.3x long-term permanent leverage but more than that and it becomes increasingly likely you will go broke at some point

newwurldmn · Nov 13, 2020

Daal said:
You might get away with 1.2-1.3x long-term permanent leverage but more than that and it becomes increasingly likely you will go broke at some point

why? You can run a 200x200 long short which would have 4x leverage and carry less risk than a 100 long.

Daal · Nov 13, 2020

newwurldmn said:
why? You can run a 200x200 long short which would have 4x leverage and carry less risk than a 100 long.

lol no way. That 200 short can blow up an account faster than anything out there. Just look at how Einhorn has ruined his career with much lower levels of leverage but following a similar principle. VWs happen, I have been so many stocks have monsters crazy runs that every year that passes my short size for individual equities only goes down

Magic · Nov 13, 2020

Zoomer, you can't set and forget with leverage. Fluctuations in equity will change your leverage ratio. If you hold 200% US Equities and the market goes down 10% what are you holding now?

So, you have to continually keep your leverage in check. And now you run into the problem with trying to leverage weak expectancy like blind long index; you are going to be gearing up into every rally and selling after every decline which is going to be a serious drag on your returns. You can't be lazy and make outsized returns over the long run. You have to pick one or the other.

Daal · Nov 13, 2020

newwurldmn said:
why? You can run a 200x200 long short which would have 4x leverage and carry less risk than a 100 long.

Joel Greenblat on Hedge Fund Market Wizards:

And thats without leverage!

lpope · Nov 17, 2020

Bad idea but depends what's in your portfolio. IB went from 15% maintenance margin basically across the board to 100% for some relatively stable assets in 2008-9 and again at other times. A portfolio of preferred shares and <1bn market caps would have needed to take margin down to zero regardless of quality. Same story with non-US equities at another point in time.

Vol parameters bite too during drawdowns. I was up significantly in March/April but had to liquidate positions because of higher margin requirements.