Q.......
Tom,
I recently read the Lichello book on AIM and it has increased my understanding of my recent mistakes greatly! I now want to get my account converted to AIM and get on track.
Just before Christmas I baselined my "portfolio" with the Aim spreadsheet. The only problem is that I am grossly cash poor (been an expensive year). In order to get to the recommended levels I need to either:
1. ignore the recomendations and muddle as best I can
2. sell stuff in order to get cash
3. ignore the buy recommendations of the system until the sell builds a satisfactory cash level.
4. sell everything and go on a great first class world tour
5. go back to sleep
I am inclined to go with option 3. any comments?
Regards,
Robert
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A.......
Hi Robert,
I'm glad you have taken the time to read through it and feel it's worth a deeper look. I had a feeling that you might like that algorithm. It's much like the closed loop controllers we used on combustion equipment where I used to work. The main difference it the "positive feedback loop" of
each AIM directed buy increasing the Portfolio Control. That would have been a disaster in equipment control!
I can understand the problem of not having enough cash at the start. That was essentially my own position in January of 1988 when I started (the proximity to Oct. 19th, 1987 is no coincidence!). Your five potential starting methods show you understand the situation!
I've used essentially all of the methods mentioned. :-) I think I'd recommend against #2 except for equities that you don't think have any future or won't be useful with AIM. Don't be too quick to judge what is a great or lousy AIM stock, however. #3 makes the most sense. You know how
much you have at risk and that it could go either up or down from here. If we assume the market is now much healthier than it was a year ago, #3 is the best choice. My personal opinion is that the market is MUCH healthier than a
year ago.
Last year at this time my Idiot Wave (see the web site) was showing high risk, where now it's just showing at the low end of the average risk range. So, if the market rises this year it should afford you the opportunity to sell into that rally and raise some initial cash reserve. This can be done with AIM "by the book" starting points or some adjustment of that. Here's some ideas....
1) for those equities that are already profitable, set Portfolio Control at 90% of the current value of the holding. This will get AIM started selling sooner and profitably while starting to build the Cash Reserve.
2) for equities that are near profitability, but still under water, set Portfolio Control at 100% of the total cost of the equity and let AIM take care of the rest. This will give you at least a 10% profit on the first sale of shares and all sales after that point will be more profitable.
3) for those equities that are very far from profitability, but show some signs of recovering, a way to get clear of them is to set up AIM with Portfolio Control at the current value. AIM will have you selling off shares at a loss for now, but it will give you a chance to liquidate a portion of
the "bad" equities while building up some reserve cash. Should it be a strong trend that carries the stock upward, then you may actually get back to break-even on the investment. Then you can decide if you want to keep it
or not.
As I said, a year ago my Idiot Wave was suggesting 50% cash reserve for starting AIM stock accounts and 33% for diversified mutual funds. Right now the IW's showing 37% Cash for individual stock AIM accounts and 25% for
starting mutual fund accounts. So, it is suggesting that we are doing much better relative to risk this year than last.
I'll be happy to help you out as you get set up. I think you'll be quite pleased a year from now as to the relative strength of the account. Chances are it will be up in value and you'll have some cash cushion that's not been there before. Let me know if I can help further.
Best regards, Tom |
