Greetings Mark,
I am looking forward to meeting you and you wife in Vegas. I am not sure yet if my wife will attend. She did last year but she wiped out all of my prior year investment gains on the slot machines ;-)
Actually no ... she actually ended up a few hundred dollars to the good which was enough to cover our hotel room!
You wrote:
... one of the problems I see ... is having to think in terms of the number of shares. My feeling is that the number of shares (usually) doesn't matter ... What really matters is the VALUE of the equity investment.
I beg to differ! (Actually I would not only beg but also grovel if it helped me to win an argument ;-)
Yes I agree that the VALUE of the equity investment is the key measure in using AIM. However, once you restrict yourself to just one security (as the Money Spinner requires) then VALUE and NUMBER OF SHARES (given the per share price) are just two different ways of talking about the same thing.
In fact, implicit in the way some people use AIM today, the number of shares is used in determining minimum transaction size. For example consider the common minimum formula of $500 or 5% of current market value. If we were dealing with just one equity this could be equivalently expressed as a minimum of $500 or 5% ot the current number of shares held. Mathematicaly these are equivalent and therefore in theory one could look at it either way. Thus in theory your contention is quite correct (i.e. VALUE is what really matter and so the number of shares does not matter).
However one, I think, would be equally correct if one said that Value doesn't matter and that only the number of shares matters. I personally like to use both points of view for a couple of reasons. First, in practice it is often helpful to look at the same problem from two different although equivalent perspectives.
An idea or a solution to a given problem might be obvious from one point of view but apparently hidden for the other until it is finally pointed out. As an aside, I think that the true mark of a genius is someone who is able to see and point out to others that which is clearly "obvious" to everyone and yet had never been noticed until the genius pointed it out.
Is that statement obvious to you? Did you notice it before? Am I a genius? ;-)
Second, I believe that thinking in shares can be a useful tool in AIMing. For example, the Money Spinner starts by trying to make a 100 share trade. If the minimum interval requirement is not met however then the number of shares increases. While I did not mention it in my previous post, the Money Spinner suggests that you can round the number of shares to the nearest 100 if you wish.
Using board lots of 100 shares certainly made sense in the early 1980's when the Money Spinner came out. Today of course we generally suffer no financial penalty for trading in odd-lots. Still it could be useful to stick with 100 share board lots today. Why?
Well if one wants to pick up some extra money by selling options on a stock that one is trading then one has to think in terms of units of 100 shares since most (if not all) option contracts are written based on 100 share units. If I used options (I don't yet but I am studying this) then I would setup all of my AIM accounts of securities which I wish to option using 100 share units for all transactions. (i.e. I would determine GTC orders on the basis of 100 share lots but rather than enter GTC orders I would sell options. If an option were exercised the effect would be just like a GTC transaction. If the option expired I would simply sell a new option.)
You also wrote:
(The only time I can see where the number of shares becomes a significant factor is when you're given a recommendation to sell $500 worth of a security, but the security's price is $1000 a share.)
This is certainly a problem but only in theory. Because of my use of shares I would, in effect, never be faced with this problem. I put a variety of restrictions on my AIM trades (for example a minimum transaction size restriction) including the restriction that all transactions must be for an integral number of shares.
In my humble opinion I think that Automatic Investor might benefit from the ability to employ number of shares parameters as well. What do others think? How many AIMers out there make use of NUMBER OF SHARES as part of their AIMing strategies?
Take Care,
Barry |
