Q.....
Hello Tom: First, continued best wishes for your good progress in recovering from surgery. I am a very small investor and so have not invested in joining SI, but do enjoy reading the discussions there. A recent message of yours mentioned Tom Phelps book once again and it reminded me to ask you if you would comment on what I regarded as a somewhat mystifying few paragraphs having to do with calculating "highs" and "lows" from the dates of their previous "highs" and "lows". Do you remember the discussion? What did you make of it?
H.
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A......
Hi H,
I think the discussion had to do with selecting stocks for AIM. One writer was saying that he was confused by the different values for BETA from different sources. BETA is a measure of price volatility relative to the broad market averages. It can be calculated for any time range you want, but many sources don't tell you the time frame. I use Value Line's BETA rating because of its longer time frame and because of its consistency over a broad group of stocks.
The other item mentioned was relative to "efficient" buying of initial shares. There's been quite a bit written on this over the last few years by BB members and my thought is that it hardly matters where we buy if we buy a good company's stock and AIM it for 5 years. So, buying a stock initially that's out of favor may do some good during the first year, but may not show much difference after several years of maintaining that investment.
I think I also mentioned that if we were buying at the recent market lows and applying full cash reserves to it. Then we're further from being 100% invested and will remain so during the following rally. The person that's closer to 100% invested near the bottom of the market cycle will probably make more money (more shares rising). So, if we start near the cyclical top of a price cycle and are heavy in cash, we get the luxury of averaging down during the next decline. We get closer and closer to being 100% invested as we go.
So, for the short term, it makes sense to be a good shopper, but since AIM is a long term management tool, it makes very little difference after several cycles. Our goal is good growth with enough volatility to make AIM work overtime. We periodically look forward to being nearly 100% invested as we take advantage of the oddities of market psychology. In the long run, it's more expensive to miss an opportunity for long term investing than it is to miss the absolute bottom of a price cycle. Better to take AIM and fire than to not AIM at all.
Best regards, Tom |
