Q.
Hi Tom,
I have read Mr. Lichllo's book and I am very interested in trying it out.
I have a bunch of questions for you:
1. How often are you adjusting your portfolio? Monthly, Quarterly,
Bi-weekly?
2. How much money did you start with? $10,000?
3. Have you read any of Wade Cook's stuff? I am interested specifically in
trying to write covered calls against a stock but managing this with AIM.
Do you have any thoughts on this?
4. Are you using the New AIM (as outlined in the third edition)? If so
have you used it from the start?
5. Have you used margin at all? How do you feel about using margin when
your stocks are below a certain threshold? (if you know what I mean.)
6. Are you available for consultation or can you be reached telephonically?
7. What was your year like in 1994? How well did AIM do?
8. Thanks for a great website.
Sincerely,
Glen
A.
i Glen,
I'm glad you found the web site and found the info helpful. It took a while for the various search engines to pick up the site, but now it shows up with most of them. I'll see if I can answer your questions one at a time:
>>1. How often are you adjusting your portfolio? Monthly, Quarterly,
>>Bi-weekly?
The software that I use for my AIM accounts is set up for weekly updates of the prices of the stocks. I've used monthly and biweekly as well. The benefit that weekly updates brings is just that it helps you stay in tune with what's happening with your equities. I'm not sure there's much other benefit. I have a general rule not to trade in the same stock more than once a week. Like all my rules, I break this one on occasion.
The software graphs the price history against a 26 week moving average. For the technically minded, this gives a feel for AIM's efficiency compared to other T.A. methods. The program also gives you the next buy and sell prices for each equity you manage with it. This allows you to place orders in advance for a minimum buy and sell for the program. I set these orders up as "Good until cancelled" and "Do not reduce". Then I'm done until the next trade occurs. This single feature takes much of the tension out of investing.
>>2. How much money did you start with? $10,000?
It's been rare that I've started an account with less than $10,000. When I first started AIM ten years ago, I had several stocks left over from my prior methods of short term trading. These I bunched together by business types and created accounts big enough to trade with AIM.
The smallest account that I've ever started was with a mutual fund. I started that one with $3600 total, split between equity and cash on a 2/3 - 1/3 basis. That account is presently up around 175% since starting it sometime in the early '90s. It's still at about 1/3 cash, btw!
The largest account I ever started was worth about $80,000 initially. That one was started with almost 80% cash reserve. AIM was the only way that I ever made any money with that stock as it is still today only at about the same price that I started with. My AIM profits are about 195% since starting the account. That stock, at one point was 1/8th the value of where I started with it!
>>3. Have you read any of Wade Cook's stuff? I am interested specifically in trying to write covered calls against a stock but managing this with AIM.
>> Do you have any thoughts on this?
I only have a cursory knowledge of Mr. Cook's writings. What he promotes seems to be his seminars. ;-) His methods are quite advanced for those not familiar with investing in general. The beauty of AIM is that it is simple and methodical. The best reason to use AIM is to take advantage of the Herd Effect that the short term traders exhibit. AIM is always willing to buy from the fearful and sell shares to the exuberant!
I use the sale of covered calls to enhance my AIM trading. This isn't easy to describe all at once, but the basics are:
1) since I know at what price I'll sell my next 100 shares, I can sell a covered call (one contract) near that price.
2) the premium in the contract has to be enough to justify the transaction after ALL EXPENSES! That includes commissions, taxes and a happy profit for me.
3) I don't use covered calls until my AIM account is nearly as full of cash reserve as I will let it get. Let's say between 40% and 50% typically. The reason is that the premium might be nice, but it won't buy many shares if the price falls away from the strike price and expires. I can't stress this enough! AIM requires Buying Power. That means cash. If I already have plenty of cash, then I can "afford" the extra premiums I might gain from selling Calls.
>>4. Are you using the New AIM (as outlined in the third edition)? If so have you used it from the start?
When I started my AIM accounts in earnest was January of 1988. I had just been through the "crash" and was buying everything in sight in October, November and December of 1987. There was no cash reserve left! So, I sort of started my AIM accounts with 100% invested and 0.0% cash.
I've started AIM accounts without cash and with as much as 80% cash over the years. Today I use the Idiot Wave as my guide for the starting cash reserve on a new investment. It's been pretty good about its advice. Right now it's saying that new single stock accounts (a high BETA stock) need 51% cash reserve available. Early last summer it only wanted 40% - 41%. It ranges about based upon its components measure of market risk. Right now it's pretty high on a couple of them.
>>5. Have you used margin at all? How do you feel about using margin when your stocks are below a certain threshold? (if you know what I mean.)
So far, I've not had to use any form of debt to finance my AIM accounts. Since I am retired, I have no other source of income but my investments. If I have a bad year in the market, I don't want to be beholden to the banks or brokers. Where would I come up with the money to satisfy a margin call? It certainly wouldn't be prudent to sell equities off that I'd just been accumulating for their future potential! In my situation, I feel I just can't afford any debt.
Since I have other assets other than securities, should the market really get trampled, my cash reserves exhausted, and the market still kept descending, I would potentially have some borrowing power left by mortgaging those other assets. That would be a last resort, however. I don't think I would do it unless absolutely every indicator I could dream up told me the market would turn around in relatively short order. AIM likes to generate cash in a hurry after a buying spree, so it could quickly start paying off the margin or bank debt once the recovery was under way.
I treat my investing as a business. The business is has two parts. One is set up like a warehouse for stocks. AIM is my inventory control manager, purchasing agent and sales manager. I make the decisions about what equities we'll inventory. The other division of the business is the banking end. It takes care of all the cash that is generated by the warehouse. It earns interest while it's flush with cash and loans makes loans to the warehouse when the shelves need restocking. It knows that AIM won't buy for poor reasons, so it loans this money willingly. The banking side of the business has only been completely without reserves once. That was in the very beginning, January of 1988.
My general rule of thumb is stay away from all forms of debt. Be your own banker, it's much cheaper and you sleep better!!
>>6. Are you available for consultation or can you be reached telephonically?
I'll be happy to answer any questions that might come up along the way. Also our AIM Bulletin Board is a great place to ask questions as well. There you will get some different interpretations from people from all across the country. (and recently from overseas) You can access the BBs from the web site. However, until you register with the server, Silicon Investor, you will be in a "read only" format.
>>7. What was your year like in 1994? How well did AIM do?
If memory serves me, 1994 was tuff on my bond portfolio and since I use AIM with it as well, it was in a buying mode. My stock account was up for the year, but it was a confused market. Seems to me that AIM was busy all year as the market churned about. I have all those records at my office, so can't quote the actual numbers right now. I'll check and send them later.
Thanks for sending the note and questions along. Hope this gets you up and running.
Best regards, Tom Veale |
