Q............
Hi Tom,
Just want to send a note to get your personal opinion to use in forming
my own personal investment strategy and, frankly, to gain perspective
in this very emotionally trying time.
1) Do you still have some cash left in your UOPIX AIM account? If so,
are you planning on buying more UOPIX if the NDX drops further?
2) How do you compare your psychological and emotional feelings now
to what you experienced in the fall of 1998? (Just trying to get help
in forming my own emotional outlook with the NDX looking as bearish as
it does now, going forward.)
I really like your site and have noticed that the "IW Oscillator" is
dropping into the very low risk area. Thanks for the great site.
Hope to hear from you soon.
-----------------------------------------
A..............
Hi Jim,
First things first.... Nope, the UOPIX AIM account is now tapped to zero
cash reserve. That account receives no fresh cash since it's alumni
money derived from selling our fraternity house and property when
it disbanded in 1995. UOPIX has to be self-funding as far as its cash goes.
When that account was started, we split the total available cash into two
parts. One was for growth (UOPIX) and one for income (GSF, soon to be ACG).
There is some accumulated cash in the GSF account (about $4000+) so
theoretically I could buy once more. This would lower my next Buy price
nicely and probably would kick-start AIM's cash recovery program. However,
I need to check with my other alumni on whether I can rob from Peter to pay Paul.
(See execpc.com for full story)
In 1998 it seemed to me to be clearer as to what the problems were.
There was serious international recession that was starting, but
it looked like demand would pull it out quickly. My emotional
feelings at that time were that it was a wonderful
"planting time." "Harvest" was just a matter of time.
This time around, we have a different type of problem. It was a market
problem almost exclusively. P/Es for the leading stocks soared to record
highs. Price/Book Value and other measures were just as out of line. Almost
every traditional measure was off scale. The number of companies which
were the focus of attention grew smaller and smaller. And, right on cue, a
"modern explanation" arrived to explain away any market fear -
"New Economy" rolled out its banner.
All of this is classic "market bubble" stuff. It takes time to unwind from
such times. Because of the way markets act and react today, it is my
feeling that it will unwind faster this time than in the past. Much of
the work is done, but unfortunately not all in the stocks that are this
year's former "Nifty Fifty." The high rollers of the last few years are
still showing pot bellies where the less frequented stock stopping points are much healthier.
Back in the beginning of this year, in my personal account I started raising
my "Buy Resistance" or SAFE value while dropping the Sell Resistance. I
wanted my AIM accounts to give off as much cash as possible and to have
greater discounts as goals for buying. If a $30 shirt is suddenly $60,
then it's no "bargain" when the price falls to $45. In some cases I raised
SAFE to as high as 100% or higher briefly on the Buy side. This basically
stopped any buying initially.
Very slowly I've been easing back on my Buy SAFE towards more normal levels,
but in most cases I've kept the bias towards selling rather than buying. If
you look at my portfolio history, you'll see that although I've now spent
about 40% of my peak cash reserve, there's still quite a bit left. In
1998 it seemed to get spent down at a faster rate. At that time I didn't
feel the need to inhibit AIM's buying. This is 'seat of the pants' stuff
that's not AIM at all, but experience.
(See aim-users.com and look at late '98 vs today for Cash Reserve)
For assistance in helping to form the proper emotional and psychological
framework for investing - especially something as wild as UOPIX, get a
copy of "Psychology and the Stock Market" by David Dreman. It's a great
place for constructing "benchmarks." It's still available from Amazon.com. You can get to their site from my AIM site.
( aim-users.com )
The IW Oscillator has been our friendly "therapist" in recent weeks.
It is showing that we're doing a pretty good house cleaning and that we don't
have to worry as much about finding much more dirt swept under the carpet.
This doesn't mean that risk is gone, but that it has lessened. We're
now just getting back to the MIDDLE of the "Average Risk Range" after
taking 40% off the average NASDAQ Composite stock price! So, I guess
the NASDAQ could continue to drop even further which would bring the IW
eventually to its Low Risk area.
My best guess is that "Money" won't wait that long and we'll start to
see some bargain hunting after we have a new president-elect in place.
Further, I guess that we'll see NASDAQ 3200 to 4000 a few more cycles
with a wider range of 3000 to 4200 as its outside. The "Nifty
Fifty" still need to grow into their new P/E levels before the overall market indexes will advance.
As far as UOPIX goes, I think it will be an excellent AIM trading vehicle
until such time the NASDAQ resumes its bullish direction. At that point AIM
will continue to be a good risk manager for those unforeseen events that randomly pop up.
A very important part of what AIM does for us is to re-condition us to
a better frame of mind. It lets us think about our investments as
a business and use business logic to analyze the situation. AIM has an
excellent fiduciary record. Most trust departments would be envious. It's
not that AIM does so much better than other methods in a Bull market but
that it does far better in a Bear market.
Please feel free to ask further questions.
Best regards, Tom |
