Hi Dave, I guess first a review of the "vealie" concept is in order. There are times when the market price seems to want to rise, as you say, "to the moon" with no setbacks. Under such circumstances we have about three choices:
1) follow AIM blindly until the run is over and maybe allowing the Cash Reserve to rise to an illogical level.
2) syphon off excess cash after it starts to accumulate beyond some arbitrary level (say 50%) and use the cash to start other AIM investments.
3) use a "vealie" to control the level of cash reserve at an arbitrary level (or maybe the IW's suggested level) and keep the account more fully invested.
#3 is most easily explained this way: If an AIM account has reached the point where the Cash Reserve is large enough (reached our arbitrary goal as a percent of the total account), then it no longer makes any sense to continue selling. Any further selling would raise the Cash Reserve percentage beyond our goal.
I use a band of about 10% of the cash reserve's goal as where I start "vealies." So, if it's a group of stocks or mutual fund and 33% is my cash goal, then I'll stop selling when the account hits 33% and resume selling when it falls below 30%. For an individual stock, I might use 50% cash as the goal and start using "vealies there, but if the account grows enough to dilute the cash reserve to 45%, then I'd resume selling.
At the point that AIM is suggesting that I sell $1500 of my $30,000 holding, but I already have $15,000 in Cash Reserve, I'll pull a "vealie." In this case, I'd take the $1500/2 and use the answer of 750 and add it to the Portfolio Control. I don't sell a single share, just bump up the PC.
In a very rapid move, sometimes it might require you to do this twice to eliminate all sell signals: Let's say that the Market Order is to sell $2000. We pull a "vealie" and add 1000 to Portfolio Control, but we're still getting a sell order for $1000. Well, we just do it again and add 500 to portfolio control. This continues to negate the Market order and increases our risk envelope by $1500. Both the buy and sell points have been advanced and now we just wait for the next price move.
I've also had the occasion of a combination of Sells and "vealies." Let's say we get an order to sell $2000 worth of inventory. However, that will raise our Cash Reserve beyond what we have set as our cash goal. At the same time, we're just a little below our goal and could use SOME more cash. Maybe a Market Order of $1000 would do the trick. Well, then I'll sell the $1000 worth and do a "vealie" on the second half by adding 500 to Portfolio Control. This has worked well with mutual funds and I assume would also work fine with an AIM account that has many stocks in it.
So, if you are using individual AIM accounts for each stock, you will have different cash goals than a composite AIM account. I look at my overall cash reserve along with my individual reserves. I love it when my overall cash reserve is in line with the IW's Mutual Fund suggestion since my total account is in reality a minature mutual fund. Because of my circumstances, I run almost every one of my stocks individually as separate AIM accounts and let their cash follow their own lead.
I'd have to fire up my old DOS Lotus 123 spreadsheet to see what the sell points would be for your example. I'm not sure I remember how!! However, since your Sell SAFE is set at 15%, and if your PC currently is 30,000, then you would start getting sell signals any time the account rose in value above about $35,000. It will provide a constant cap on your risk exposure at about that level until
a) you start to buy shares again, or
b) you start to do "vealies" to expand your risk envelope.
This would occur when you reach your cash target of about $15,000.
AIM says to you, "You were only willing to risk $30,000 to begin, why should we let your risk grow much beyond that?" The "vealie" says, "We're holding plenty of cash in reserve for this investment, why not bump Portfolio Control upwards a tiny bit?" There are logical reasons for expanding one's risk envelope. One is when we buy more shares at a nice discount. The other is when we're already flush with cash.
Dave, if I've missed the point, please ask again!!
Best regards, Tom |
