Why You Should Never Borrow Money To Buy Stocks
In July 2026, roughly 1.2 million South Koreans—around three percent of the country’s working-age population—were forced to sell their stocks to pay off debts owed to their brokers.
Korean stocks had been on an extraordinary run. The Korea Composite Stock Price Index (KOSPI) more than doubled from late 2025 to its peak in June 2026, driven largely by excitement surrounding artificial intelligence (AI) and semiconductor titans like Samsung Electronics and SK Hynix. As prices climbed, local investors grew increasingly eager to buy on margin, convinced the rally would continue. By late June, margin loans hit a record high of 38.6 trillion won.
Then the market turned.
From its June peak, the KOSPI tumbled roughly 38 percent across most of July. Investors who bought on margin started receiving margin calls from their brokers, forcing them to liquidate their holdings to settle their loans.
The worst part came on July 31. Immediately following three straight days of severe losses, the KOSPI surged 17.9 percent in a single day—its largest one-day gain in history. Samsung Electronics jumped around 26 percent, while SK Hynix hit its 30 percent daily price limit. Anyone who had enough money to simply hold through the crash participated in that historic rebound. But investors who bought using debt did not have that choice, as their brokers had already forced them to sell during the downturn.
The big problem with using debt to buy stocks is the mismatch in the timing of their cash flows. With debt, you need to make interest payments on a regular, short-term basis. In contrast, stocks don’t have a specified payment schedule. A board of directors can change dividend payments at will, and stock prices shift based on people’s mood about the company.Even if you’re invested in an excellent stock, it can take years or decades for that excellence to turn into investment profits, because in the short run, prices and dividends are heavily driven by crowd mood, and those moods change constantly. As famed economist John Maynard Keynes once said: “Markets can remain irrational longer than you can remain solvent.”
When you borrow money, your lender does not care whether your investment will do well over the long run. Debt makes the path of your investments matter just as much as your destination. Your payments are due on specific dates, and with margin loans, declining stock prices can force you to post additional collateral or sell your investments immediately. You might be completely correct that a stock will 10x over the next decade, but you won’t make it to year 10 if a 50 percent drop in year one forces you to sell at a loss.
This doesn't mean debt should never be used for any investment. There are assets where cash flows are far more predictable. A rental property, for example, generates monthly rent that directly helps service a mortgage. Similarly, if you have full control of a company, some businesses produce cash flows predictable enough to fund with a safe amount of debt. Minority stock ownership does not fall into this category because every lever you can pull to produce a short-term cash flow for debt payments is controlled by someone else—whether it’s the dividend controlled by a board of directors or the stock price controlled by the market as a collective.
The Korean experience shows why this distinction matters so much. Investors who could hold through the crash saw the KOSPI stage a record-breaking recovery immediately afterward, while those forced to sell at the bottom due to leverage could only watch with regret. While investing without leverage may look slower, at the end of the day, being late is better than never arriving. So stay safe, and avoid debt when investing in stocks!
First published in the Manila Bulletin.