When multibillion-dollar hedge fund Long-Term Capital Management nearly collapsed in September 1998, the main culprit was not the esoteric investments the fund had made. Rather, it was the excessive amount of leverage the fund had used in its positions. That leverage helped the fund post hefty returns while the market was soaring, but it came close to bankrupting the fund when the market went south in late summer. Leverage increases the potential returns on each dollar invested, but it also increases the risk.
Leverage in Stock Investing >>