HOUSTON — During a late night at home in May 2021, Hy Luu, a 29-year-old engineering consultant, was researching how to obtain more capital to invest in shares of Tesla.
That's when he discovered margin investing: the act of borrowing money from a broker to buy securities such as stocks, while using existing investments as collateral. Borrowing would give him more buying power, and he could pay it back as the stock appreciated. The main risk would be a margin call, or having to deposit more money into the account, if its value fell.
Luu — who lives with his mother, Kim Nguyen, in a three-bedroom, two-bathroom house in Houston — decided to get her opinion on the topic, given that she used to work as an accountant and just so happened to still be awake that evening. The 66-year-old retiree found it interesting.
That was the reassurance he needed, and it wasn't long before he started using margin to invest in Tesla for the first time. A year or so later, he had amassed more than $100,000 of margin debt.
"I went really crazy," he told CNBC in an interview. "The stock was going up, and so I was like, 'There's no way I could lose.'"