Q........
Tom,
As I browse thru your www pages, I see that you have a wide variety of starting dates for your AIMs. Now that I'm retired, I struggle to see how to start additional AIMs from where we are today. Is it safe to assume that your choices are made as a result of cash infusions from paycheck contributions, IRS refunds, etc., Buyouts of existing holdings, and decisions to terminate an AIM item?? Have you developed a set of rules to tell you when a stock/fund is no longer viable as an AIM item? I note that earlier this year, you got out of IDTI (in for about 3 years) and into JBL. What was the trigger that got you out?
Since we are not adding any "fresh money", the only source of funds are internally generated within the accounts. All of our AIMs are in IRAs so cash infusions of any size are very limited, and almost of no value to an AIM position. So, the only ways we can start a new one are
1) a buyout like VLSI or Omniquip, or
2) we decide that a stock has gotten to too large a percentage of the total, and sell a chunk.
3). I decide to let a covered call exercise, or someone decides to call the stock away from me before expiration.
Thanks
Robert
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A.......
Hi Robert,
"I struggle to see how to start additional AIMs from where we are today. Is it safe to assume that your choices are made as a result of cash infusions from paycheck contributions, IRS refunds, etc., Buyouts of existing
holdings, and decisions to terminate an AIM item??"
Yes to most of those! No to others. I've not taken a pay check since 1986, so there's been little regular "cash infusions" from that source! I've had some fees paid to me for some consulting but it would be an over-statement to say that it's the source of the newer purchases. Most of the items that I've bought over the last 12 years have been from proceeds of the sale of another equity. DIGI was bought out last year from my portfolio and I was paid in cash. That gave me $$$ to re-deploy. Other times I get "bored" with a stock and sell it off. I did that with IDTI, but my timing was awful. I've pulled this lame trick before with other stocks!! It's like Mr. Lichello is punishing me for not following the game plan all the way to the end!!
In my initial evaluation of a stock for AIM, I'm looking for projections of a double in the next three to five years in Revenues and Book Value. If a stock later on looks like this doubling of such values isn't going to occur, I'll look for a good exit from the stock. I usually use AIM's Sell activity to do so. However, as you've seen, that part hasn't worked so well!! IDTI is now around $20/share and I exited at about $8!! So, maybe a better strategy would be to set the Sell SAFE (Resistance) to zero and continue to sell until all such rally efforts look to be over. At the same time we would raise the Buy SAFE by the same amount as we just removed from the Sell side. In other words, we're building in a bias for selling over buying.
Your three choices of how to diversify have all played a hand in my own account's activities. However, I've never sold calls for more shares than AIM would have me sell at a given price.
In the last two years buyouts have done more for raising cash than any other activity. There are still some stocks that I'm planning on exiting sometime in the future. Reasons go from boredom to deciding where the stocks fit in
my overall scheme.
The "size" issue is one that is very interesting to address. Several of my largest positions have become that way just by being really good investments. If you are familiar with the "Investment Pyramid" concept, there are "foundation", "middle section" investments, and "peak"
investments. The foundation needs to be strong and also contains enough "mass" to support the rest of the pyramid. The mid-section is smaller in total value and does not need the structural strength of the foundation portion. Finally there's the peak. It's tiny in total value but contains the
highest Risk/Reward items. If the investments go well, then maybe these items will shift to the mid-section and be replaced with another speculative investment at the top. If they bomb, well, we'll survive!
AIM modifies the pyramid a bit in that the Cash Reserve acts like an extremely strong mortar. It makes foundation stocks stronger than they are on their own. Same with mid-section stocks and peak stocks. AIM's a risk modifier. Your main holding is probably a mid-section stock for a non-AIM person, but qualifies as a foundation stock with AIM's Cash Reserve. VTSS was until recently a Peak stock, but with AIM's help it fits nicely into the mid-section.
Overall, we have several different plateaus of investing and risk control. One risk control method is AIM and another is diversification. Each works in its own way. AIM acts to over-ride psychological mistakes in judgement.
AIM's also "Proactive" for us. It not only keeps us from becoming too greedy, it makes good calls on having us invest more $$$$ when prices are more fairly valued.
Diversification is like an averaging effect. I feel diversification is over-rated for the simple reason of looking at today's market. If the market is really over-valued then most of the stocks in a diversified portfolio are also over-valued. So, they'll all suffer in a bear market. Besides that, diversification isn't proactive. It does nothing to help us in an over- or under-valued market.
I think you could pick 4 or 5 industrial categories and one stock (the best) from each and do very well. This would give you some diversification (but not too much, like I have) and AIM would manage the risk of keeping such a
tight portfolio. If further diversification is desired, then choose an index fund and manage it with AIM.
Jeff Weber manages to diversify his portfolio by using his most successful stocks as "cash cows." He doesn't use "vealies" but continues to sell as the prices rise. This keeps a cap on the total value at risk in an individual
stock. The surplus Cash Reserve is accumulated until such time as there's enough to seed a new AIM account. He repeats the process as more cash accumulates.
I don't like the idea of just selling off large chunks of your position to diversify. However, if you don't have adequate cash reserves for your AIM positions, then it might be justifiable to fill the "bank" with buying power
for the future. I have way too many stocks and funds in my own account. I'm trying to do just the opposite of you - trim mine back to a more manageable number.
I've updated the "History" page at my web site again. I've included some new graphs of my overall cash hoarding with AIM. These might help a bit in your thinking.
execpc.com
I'm running out of things to say!!! Hope this helps a bit. Remember that in Mr. Lichello's book he suggests to us that we not "over-diversify." With AIM we already have a better risk manager than diversification.
Best regards, Tom |
