It's tempting but terribly dangerous, says Elon Musk of this investment strategy

Elon Musk himself uses this method. But he warns others against it. It sounds tempting, but it can be a dangerous trap. What is it?

Musk says the method is tempting but dangerous.

He used it himself recently - let me put it in context:

Musk has long tried to buy Twitter. But the price remained higher than he wanted and, more importantly, than he could liquidly provide. The problem he has now is that he has run up a debt of USD 13 billion to finance the takeover of the platform. This was a margin loan, where he pledged some of his Tesla shares to $TSLA.

The way a margin loan works is that once the value of the collateral is reduced from the amount borrowed, the borrower has to provide additional collateral to make up the difference.

The amount you can borrow depends on your financial situation and the allowable loan-to-value ratio (LVR) of your existing portfolio, i.e. your shares, managed funds or cash used as collateral. The LVR is the amount of your loan divided by the value of the shares…