Hi Dave and Bernie, Here's some food for thought. Early on in my AIMing, I used to try to start my accounts with as little cash reserve as possible so that they grew "faster" in the first leg up. However, if we start with a light load of cash, then we're also anxious to get the selling started to build our reserve.
It's true that the percentage gains look better starting with a low cash reserve, but as Bernie pointed out in his review of Mr. L's hypothetical model, sometimes things don't work out just as we had planned. It took the "vealie" concept to make the fully funded cash reserve idea work right for me. Assuming that we start with a good stock and full cash reserve, we'll sell and do vealies alternately in a market of steady risk. This also improves our performance and lets us keep plenty of our initial equity position. If the price moves against us first, then we have good reason to utilize the cash reserve.
If it's a broad market movedownward, then chances are the Idiot Wave will also move down to a lower risk profile. Then when the market turns positive again we get the luxury of pulling some "vealies" from a lower cash level and enjoying our recently purchased inventory for a bit longer than with conventional AIM.
It was a mistake to have tried to use too small a cash reserve in the beginning. The last place I did it was with VTSS. I started that account 100% invested. The gains looked brilliant, but my inventory dropped rapidly as VTSS's price took off for the sky. Had I used "vealies" and an appropriate initial cash reserve, I'd not have sold as many shares as quickly. I've never done the actual simulation, but it's my belief that the initial result wouldn't look as good, but the end result would have been better.
Best regards, Tom |
