Q......
Good Morning Bernie and all,
I am interested in what you think is the minimum amount of money that must be committed to a stock in order to AIM it? And why? I have read $10,000 including the cash reserve should be the minimum. Is that due to the costs, such as brokerage fees and the old requirement that you buy in lots of 100 shares to avoid a penalty on the brokerage fees? Or is there something about the AIM formula that takes a minimum sized investment to make it work?
Thanks for your thoughts,
Larry M
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A.......
Good morning Larry,
It's nice to start off the day with some good questions to answer.
Mr. L recommended a $500 minimum sale and 5% of the stock portfolio. I don't know if you are familiar with the logical functions #AND# and #OR# as they are used in Spreadsheets, so I will give a brief definition.
#OR# is used with a group of conditions when either condition satisfies the argument.
#AND# is used with a group of conditions when all conditions satisfy the argument.
If you had a holding of $3000 and was trading 5% of your holding you would be making trades of $150. Using AIM, they would be profitable, but the commissions would represent an extremely high percentage of the total sale.
If you had a holding of $60,000 and was making minimum trades of $500, the trades would have an insignificant effect on your holding.
That is why there are two conditions that have to be met.
The only problem with a small holding like $2,000 in AIM is that the $500 condition requires an extremely large move in the stock price. You could have 400 shares of a $5 stock. It would have to increase 40% before you would get a sell signal. It would have to decrease by 32% to get a buy. These kinds of swings can and do happen. But not nearly as often as 15% swings.
With a $10,000 investment in the stock portion of your AIM program the 5% requirement and the $500 requirement are fulfilled simultaneously. The closer you are to that $10,000 figure the more you will approximate the kind of action that most people desire of AIM.
Regarding the number of shares:Mr. L specifically poohpoohed the idea of buying/selling round lots of shares. He said emphatically that with AIM you worked with percentages. In order to sell round lots you would have to start off with more than 2,000 shares of any stock. Since with AIM you must try to stay away from penny stocks it would not be very likely that you would be able to buy/sell 100 share lots at the beginning of an AIM program.
I started COMS with about 200 shares 2 years ago. It has now grown very profitably to a holding of 1,598 shares of COMS plus 401 shares of PALM. I have 2,000 shares of APCC having started 5 years ago with 300. These accumulations happen very slowly. Mr. L likened it in his book to the making of a fine sword.
Hope this helps.
Bernie |
