Thursday, October 20, 2016

Borrow money to buy shares makes sense in certain situations

If you are an investor in the stock market, the best advice is to use money that you do not need for a few years.

The experts will tell you not to borrow money to buy shares. 

However, there are certain situations when it is good to borrow money to buy shares.

One of the situations is an exit offer. 

When Company A wants to buy Company B, it will have to offer a price.

If the share price of Company B is $1, Company A may offer $1.25 to the shareholders of Company B.

When the news of the intention is out, the share price of Company B will increase.  It may hit $1.15 or $1.20. 

When the exit offer is confirmed, the price is likely to increase till $1.23 or $1.24.

If you are very confident that the exit offer will go through, because the shareholders of both Company A and Company B are supportive, you can use all your savings, and borrow money to buy shares from $1 all the way to $1.23.   

This is a chance to make money that does not happen frequently.