Hi John, Lowering the Portfolio Control in a bear market after the last buying is done is a possibility. The method I've not considered as of yet.
It would seem to me that if one did the last buys in AIM with UOPIX at $45, for example that adding 20% to that value would certainly be a profitable enough turn around of those dollars to justify paying taxes and still make one smile. That would tell you to adjust Portfolio Control to the point that you would sell at least a portion of the shares accumulated at $45 when the price rose to $54.
Let's look at my alumni account to see how this would work...
Currently the Portfolio Control is 68,850. Adjusting the Minimums for trading to 5% of the number of shares currently owned creates a Next Sell Market Order of 50 shares at $71.97. That's a very long distance from the current value. As you said, it might take some time to see a sale and refunding of the Cash Reserve.
Our last purchase was at $39.36 for 119.411 shares. If we wanted a reasonable gross profit of 20% on that in a taxable account and wanted that order to occur for just a minimum sized trade, then we must drop the Portfolio Control. It must be dropped enough to create a Sell Market Order of 50 shares at $47.23.
A new Portfolio Control value of about 45,000 would do just that. It would then have us start to distribute shares in 50 share lots at $47.04 - pretty close to our goal. This will provide a LIFO gross gain of 20%.
Further, if we were to do this, once the Per Share price had returned to $47+, the account would also be quite profitable overall (about 42% gain since starting). So, there's no reason to not take this course if Cash Recovery is a major priority.
Now, if we had started this account at $100/share and had averaged down until the Cash Reserve was consumed, as in Mr. Lichello's theoretical example -$10-8-5-4-5-8-10, we'd have to wait for $80/share for AIM to kick in. In his example, the LIFO gain was 100%! Even so, those first shares sold were being sold at a FIFO loss. They were, however, being sold at an AVERAGE COST profit of about 23%. This, too, is acceptable.
So, maybe the best idea is to re-start the account with a new Portfolio Control equal to the Average Cost of all shares purchased since the very start. If we did this and used 10% Sell SAFE, then the account would be selling AVERAGE COST shares at a gain of that 10% plus whatever the minimums would do to raise this.
In Mr. Lichello's example, his average cost starting at $100 and finishing buying at $40 was about $67 per share. So, one would take $67 X the number of shares owned to come up with the new value of the Portfolio Control in any case, it's going to create a Next Sell price of about $78/share.
Okay, that's not much of an improvement, but does get one set up to profitably sell shares.
Now, if one says, "Well, I got caught with my pants down this time and don't want to again." One could then start selling at $67/share knowing that on an average basis this was at least break-even. Any cash thus derived would always be recycled knowing that there was no loss taking place.
To do this one would take the $67 price times the number of shares and then multiply that value by 0.85. This value would then be used for Portfolio Control to re-start the account. One would start to sell off shares at break-even to rebuild the Cash Reserve. Each subsequent sale would be profitable if you were lucky enough to hit a new bull phase.
For my alumni account, the price is the lowest if PC is changed, because the average cost of those shares is the lowest. If we assume that the price is going to now cycle in a new low range (say from $30 to $50 per share) for a very long time, one might either have to bite the bullet and make that PC change, or maybe continue to average down when outside funds are available to get the account back into some form of balance.
Season's greetings,
Tom
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