Q.
OK. I just read the FAQ's section and I have a question. You said you
set your sell resistance to 10% but your buy a 0%? How often are you
contacting your mutual fund to purchase shares? It seems like you would
be doing a lot of transactions in smaller amounts. Is this correct?
Rich
A.
Hi Rich,
Subject: Separate Buy and Sell SAFE
The reason for the change is twofold; first, there's AIM's basic 'no growth' initial design. Mr. Lichello's original AIM assumed that a stock or fund would never grow but would cycle endlessly in the same range. This has been particularly wrong in the case of mutual funds. They tend to grow in price per share along with the general market. Second, because of their diversity, funds don't fall in price very much so the cash reserve isn't well utilized.
If you model most funds' histories for a 10 year period you will find that eventually AIM will have you very heavy in cash - even if the market risk hasn't changed from the beginning of the time frame. This is because the funds actually increase in price per share over that time frame. If the cash reserve gets too large, then the overall performance starts to fall off. One's goal is to be 100% invested at or near the market bottom. Too much cash prevents AIM from accomplishing that goal.
By building in some bias for accumulation (by reducing the Buy SAFE), AIM tends to stay more fully invested over time and makes better use of the cash reserve. There is an increase in the number of Buy trades over time, which in turn, does increase the number of Sell trades as well. The main thing is that the cash has better utilization while cycling from close to fully invested at market bottoms to having adequate cash reserves at market tops.
The size of the trades doesn't change, since I use a minimum $$$$ amount before I make a trade. With my IRA I've averaged about 4 transactions per year since Jan. of 1990. Presently I have my minimum $$$$ amount set at about $1500 for both buying and selling of shares. I've been with the same mutual fund (TWCUX) for the entire period. By setting a minimum dollar value for the trade, I keep AIM making efficient trades. The addition of the minimum value is, in essence, like adding a small amount to SAFE. First the price increase or decline must satisfy the SAFE and Portfolio Control variance. Next the price has to move enough to generate a market order at least as large as I've designated as my minimum. Most mutual funds have a minimum order size requirement, so this is a way to satisfy it.
The math for this has been built into Bob Norman's Newport Program. There's separate adjustments for buy and sell SAFE as well as minimums for both dollar and share numbers. Newport doesn't give a market order until all the minimums have been satisfied as well as the SAFE range.
I hope this helps a bit. I appreciate having the FAQ's actually READ by someone!!! Lots of time was spent modeling mutual fund long term price histories before I came up with the idea of separate Buy and Sell SAFE's. This is a very nice and logical advance on Mr. Lichello's work. If he had had a modern PC at his disposal I think he would have eventually found this idea himself.
BTW, how did you find my web site? Was it thru Silicon Investor, Prodigy, or a web search? I'm always curious to find out. Also, how long have you been an AIMer. I started converting all of my holdings over to AIM in Jan. of 1988. It's no small coincidence that Jan. of '88 followed closely after October 19th, 1987!!!
Thanks again for the note. Please let me know if I can be of further service.
Best regards, Tom |
