Hi B.J.,
Thanks for bringing up the point of how nice AIM is to us by giving us significant amounts of time to do something else than watch the ticker! This is how I feel and I know there's plenty of others that have gone through this transition as well.
To change from a "potlet" to a large pot can be done in a variety of ways:
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Karl Marx Method:
"Each according to its own need...."
Pool the cash reserve and ignore the software's indicated cash reserve levels. Let the best company managers fund the worst!
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Las Vegas Method:
"Here's the deed to the Ranch......"
Let each stock go as deeply into negative cash reserve as AIM might ask. When the total Cash Reserve for the entire portfolio is exhausted, then you have to face using MARGIN as a method of continuing to buy.
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Banker's Method:
"Our suggested Loan Loss Reserves indicate that......"
Assume that your overall portfolio should match the overall market relative to risk. When market risk is highest, so your cash reserve percentages should be highest and visa versa. If not following the overall market, possibly re-align the portfolio with different stock selections.
Your total cash reserve percentage should follow the Idiot Wave's Mutual fund level if you have a diversified portfolio. It should have been low in late 1998 and again about a month ago. It should have dipped a bit last October as well. The rest of the time it should stay even as a percent of portfolio value or be growing faster than the portfolio when risk is rising.
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Mutual Fund Manager's Method:
"Our Redemption Reserves are wholly adequate to cover any forseeable market event......."
Take the proceeds from every AIM sale and start a new AIM account. This is especially appealing right near market peaks! Then, of course, right when the market is near its bottom, sell all the really bad stocks for "Tax Loss Reasons" and build a healthy reserve "Just in case it goes lower."
Historically this is exactly what institutional managers have done. It's well documented that their reserves are the lowest at the peaks and the highest near the bottoms.
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Some of this is tongue in cheek, but I've probably used the Banker's model the most over the years. I would like to totally divorce each stock and cash reserve from each other and do to a large degree. However, the Loan Officer at Veale Intl. Equity Warehouse's S&L division is a friend of mine and sometimes he'll let me borrow from one stock to continue buying in another - ala "Karl Marx."
As I mentioned, I use the 26 week Moving Average to control AIM's enthusiasm relative to buying and selling. Other than that, I don't really use much from the TA Toolbox for management. I watch trade volume and other measurables, but that's more for intellectual stimulation rather than for management.
I abhor debt and am not even comfortable with low cash reserve levels. This ends up being a driving force in letting AIM run to rather high cash reserve levels. I use the Idiot Wave to control the impulse to accumulate too much cash. This has, on balance, given me pretty good total performance on a long term basis.
I now start my "new" AIM accounts as large as I see fit within the spectrum of my current investments. I still fall back on the basic concept of the "Investment Pyramid" to see where this new idea fits as a building block. If it's highly speculative, it belongs near the top of the pyramid and needs to be sized accordingly. If it's a Mid-Cap moving towards "Blue Chip" status, well, it can fit as a much larger block much further down the the pyramid's sides.
Congratulations on the great job with JBL so far. I think it's a dandy myself and certainly am enjoying the latest part of the run. I think the EMC's in general have a long way to go. I like JBL's steady move towards service and repair of components as well. This should help stabilize their performance some time in the future if there's an economic slow-down in component sales.
Best regards, Tom |
