Track. Share. Compare.

I didn't know whether to edit or delete an old post or just tell the tale here. This is mainly for my own records, but if people want to read and comment, that's fine and great.

As mentioned, we sold stock that we calculated would give us roughly $5K to withdraw and pay off a credit card bill that is as annoying as an unwedgeable wedgie or a tiny stone in the shoe.

I did not understand (I understand better now) exactly and precisely how margin sales affect account balance; (for any gloom-and-doomers, no this story does not end in a tale of woe, nothing happened against our favor.) I'm not an accountant but I'll try to summarize the issue as it's understood by my pointy head.

I thought that for each security sold, the portion that had been borrowed would be paid back to the brokerage automatically (and indeed it was) and the portion that had been mine, originally, bought with cash (and any profit, and there were some profits, $700 worth for one of Mr. 444's sales) would go right into my cash holding pen so I could withdraw it.

Turns out that they scrape any cash on the table right into the margin balance to reduce it. Makes sense; I now understand the process from their side and from my side. While there is some additional cash that I could have talked them into making available, I was not able to take all of that money out; it was all there as "available for trading" but not necessarily available for withdrawal. They are all too eager to lend on margin - they want you to borrow, for obvious reasons (interest) but once cash is generated (a stock liquidated) they want anything borrowed back to reduce the entire margin balance in aggregate (I had mistakenly thought they treated each purchase as its own separate little loan account.) Or rather, they want to keep it in-house (they don't want their brokerage used like an ATM machine - not insofar as we are talking about usage of margin, anyway.)

If anyone is preparing a speech about the hazards of margin borrowing, save it - even over the hellacious winter I did not get burned with margin - and part of the reason is that I do not choose what I guess would be considered risky, speculative stocks. Also, I don't use all the margin buying power I could. At this point I am not completely comfortable doing that, but I am using a large amount, and Mr. 444's account is utilizing the maximum possible, and I think that's a good thing for us, right now. We need to use OPM to get anywhere. And the OPM is generating more for us than the OPM we are contributing to (interest on our credit balances like credit cards, margin loan.)

To summarize, we took the funds, which thankfully represented a profit and therefore increased our margin buying power for any potential new purchases, and reinvested every last cent of it. Which is sort of what I really wanted to do anyway. (right here is the serendipitious nugget of this essay - my plans to cash out and redirect money were foiled or at least mucked up with complications and I decided to just go with my first inclination which is always to keep the money in the brokerage and keep it working.) It pained me to cash out just to pay a stupid credit card. Obviously I like investing more than I like paying off debt.

I don't like the card balance, though, and at least we have banished that card to the top shelf of the cabinet next to the cat's flea medicine, etc., where it will stay till we pay it off which will happen either slowly and gradually or through some other chunk of money that falls out of the sky from somewhere (e.g. the economic stimulus check still has a portion not allocated for anything else so we could throw $600 at that stupid card.)

And remember we do get some pats on the back for cashing out $14,000 just a month ago and paying the CC debt way down. The cards paid off with that $ have not been touched or even thought of, and it is good to be dealing with less debt, even if not with no debt, right now. I tend to preach (and have to remind my own self of this) the careful consideration of compromise rather than all-or-nothing thinking at every juncture, and I guess we're living that philosophy right now.