Q......
"Hello Tom,
I would like to get your insights on a few things.
With the recent declines in such great stocks like ADCT,ATML,ATTL,WCOM,YHOO and others and with my cash reserves in AIM depleted. I have decided to do margin. I know this is risky but to me AIM is probably the best way to use margin. Do you agree with this?
I feel in this market now that when AIM tells you to sell you do it. No questions asked. And when it tells you
to buy, the first thing you ask yourself, "Is this baby going to drop more?"
Most of my buy safe's are at 10% and my sells at 0.
As always thank you for all the information and insights you give to us who respect you opinions.
Regards,
W"
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A...........
Hi W,
Good to hear from you again. I've still some "dry powder", but we're nearing the bottom of the keg! In years past I've contemplated whether Margin should be used in conjunction with AIM. Certainly with the entire NASDAQ off yesterday almost 50%, we can't expect to always have enough cash on hand for such emergencies.
I know that one of the things we did before I left active employment was to eliminate all debt from our family. This is from where the freedom comes. One can't be "independent" and "beholden" at the same time. As luck has had it, I've only run out of cash once and nearly so a couple of more times in the past. So, I've not yet had to face either returning to the workforce to fund more purchases or looking at margin either. It's not that I haven't contemplated it, however. The assets I have could be the first collateral for Margin. With "money" tied up in real estate, I have contemplated mortgages to create buying power. I've also thought of borrowing from insurance policies I have.
These are not things I would do lightly, however. I would imagine I would let a lot of time pass between when I ran out of cash and when I would first sign a debt contract of some kind. I know I have yet to pay taxes for Y2K and that money is there and waiting. I'd hate the idea of borrowing on margin to pay taxes!
At the same time, we all know that AIM's LIFO gains are quite generous. They should usually be better than the corresponding cost of margin. You are running with a smaller HOLD ZONE than I am as you are keeping your Buy SAFE at about 10% with 0.0% Sell SAFE. I'm mostly using Lichello's full 20% range, but all on the buy side. Your method will produce more frequent but smaller LIFO gains. So, if you assume that these last purchases done with Margin will be paid back in less than a year, chances are you'll do them profitably. If the Sells occur in just a month, then it's been quite profitable.
So, to summarize, yes margin can be used with AIM once regular cash reserve is consumed. However, please do so with your eyes wide open. The trades will be tainted with interest expense so the time to the next Sell point and margin pay-down is critical.
Best regards, Tom |
