To: Tom Veale
From: Larry Crawford
Sunday, Sep 13 1998 1:08PM ET
Hello Tom,
I've read Lochello's book and have an eval copy of Newport. I like the AIM concept and would like to start using it. However, I don't know how to start. Would you mind giving me some advice?
I have invested heavily in the oil drillers and service sector. Like most in this sector the value of my portfolio has been devestated (though last week was very encouraging). I don't want to sell here at what I hope to be the bottom for this sector. (I hold a significant percentage on margin). Is there a sensible way I can start using AIM, given my situation?
Your thoughts would be greatly appreciated.
Thanks,
Larry
Tom's Response...
To: Larry Crawford (who wrote...)
From: Tom Veale
Monday, Sep 14 1998 9:40AM ET
Hi Larry,
AIM would ba a very sensible way for you to work your way out of the margin accounts.
If you averaged down to get your accounts established, start your AIM account with the
average cost per share of the accumulated issues. Since they are all in one sector, you can
trade them in one AIM account as a "sector fund."
For use with Newport, combine the value of all the shares purchased and give the account
an arbitrary 2000 shares. To do this take the total cost of all the shares and divide by 2000.
That price will be your "NAV" just like a mutual fund. Enter the 2000 shares with the NAV
per share. If you want the account to be totally realistic, start with a Cash Reserve value
equal to the Margin position you are now carrying (A Negative Cash Reserve).
Each week you will total up the value of the various shares and divide by 2000 and enter
that value in Newport. When AIM tells you to sell $1000 of stock, you choose which stock
you want to sell and pick the appropriate number of shares to equal about $1000. AIM's not
real fussy, so if you sell a bit too much or too little, don't worry. AIM will take care of it
next time around.
Let's assume that the NAV of you portfolio is $15 at the time AIM tells you to sell $1000
worth of the shares. After you make the trade, you find that you actually sold $1200 worth.
1200/15=80 shares. So report to Newport that you sold 80 shares of the fund at $15.
Newport will take care of the rest.
If you have substantial positions in several stocks, then you may want to just run each
stock as a separate AIM account. Then each is its own leader. This eliminates you having to
act as "fund manager" and select which stock to sell out of a combined AIM account.
AIM will make profitable trades (LIFO basis) as you reduce your margin exposure.
Eventually, you should establish a large enough cash reserve that margin won't be necessary
again. However, it will require you to MAKE THE TRADES that it suggests! If you balk at
selling shares, reducing your margin acct and building a cash reserve, don't be surprised
when AIM asks you to buy and there's no purchasing power left in your account.
AIM lets you surrender Market Timing and concentrate on more fundamental aspects of
your stock selections.
If you want to repost your question and my answer on either the regular AIM bb or the In
Depth Questions bb, please feel free to do so. It's amazing how many people get into similar
situations and will benefit from it.
Best regards, Tom |
