Smart Ways to use Leverage

So, I'm going to take this opportunity to uh get up on my high horse like I like to do on this show and talk about leverage.

Good leverage, bad leverage, and everything in between.

So, leverage can often be seen as a dirty word, but we use leverage in our lives every day.

When we buy something on a credit card, when we buy a house with a mortgage, you're using leverage, right?

So, you have less money and you're borrowing on top of that to buy an asset that's going to hopefully grow in value or that you need.

Um, and ultimately the use of leverage can be very helpful.

I've I've certainly helped investors use leverage where they um take a loan out on their traditional portfolio at a lower interest rate than our expected market returns and we leverage up our equity exposure.

Um, leverage is also very commonly used when you are investing in alternatives.

So if you are investing in PE you know uh we talk about you know uh buyouts and um you know we had all these kind of things in the 80s where the use of leverage was a big deal.

The reason a lot of PE and VC and all these other types of products did really well in a low interest rate environment is because it was really cheap leverage and so they could magnify the returns and invest uh borrow at a low rate and invest with a higher expected return and therefore get you more return and more juice in your portfolios.

Using leverage to um include and manage risk can also be really helpful.

I talked about long short funds.

When you go long a stock and then you short, you're using leverage to short.

And so the short can be your risk management in many ways so that you can put more money in the stocks that you have high conviction of.

Return stacking is the same idea.

And so I like to use leverage as a way to have cheap borrowing and take what I'm borrowing and put it into a higher expected return opportunity.

Committee.