Hi Bill, I'll be interested in Jack's thoughts here as well, since he's done so much work with artificial intelligence and AIM. Here's some "first impression" thoughts:
Manipulations of SAFE are relatively "safe" for AIM users in general as they really don't expand the risk envelop, but rather expand the "hold zone." The danger here is somewhat benign as all it's doing is maybe inhibiting trading.
I thought of automating the "vealie", but it IS an expansion of the risk envelop and wasn't sure I wanted that happening without "adult supervision!!" In Bob Norman's NEWPORT, he even has an "Are You Sure" window that comes up any time you fiddle with Portfolio Control!
In a steadily rising price environment AIM will continuously trigger Market Orders, however, by its very nature, it can't have you sell out of a position. Rather, the risk envelop remains constant. So even with a stock (as beautiful as it is) like CMGI or my VTSS, using AIM "by the book" will retain the same approximate value in the stock throughout the rise. We might feel a bit silly with 80% Cash Reserve, but at least we're still in the game!
Regarding "going out of business" sales on stock, you are right to stop buying when the Cash Reserve hits zero for those who want to stay "by the book." However, the reality is that sometimes stock prices fall 75% from previous highs, (my VLSI fell from $36 to $6) while the company remains viable and vital. This has to be determined by fundamental analysis beyond the AIM strategy. I'd suggest that you have a way for your PCA users to add cash to the account under such circumstances.
There are lots of investors that don't have my personal inhibitions about using debt to finance their investing. Those folks won't have a way to show what their negative cash reserve is doing in their accounts. Most AIM devotees are conservative enough to not use margin, but some are addicted to the "leverage" it can provide.
I've been waiting for my first "sell" in a couple of stocks that I've let go to negative Cash Reserve. As soon as I have one trip, I'll be posting the example with the graphs at the AIM site. I have several that I "borrowed from Peter to pay Paul" and let cash go negative.
In other cases, I've added Cash to my accounts even when I've had enough reserve on hand. It's been when I was hoping to add to the Stock position, but didn't feel that the time was right. If I own $8000 of a stock and have $4000 in reserve, all is well. However, there have been times that I wanted to increase my position in a stock. Let's say I want to double my position to $16,000. Well, I've added $12,000 in cash right now. Then, when AIM has triggered a Buy market order (or several in a row) I'll make a non-AIM buy with the additional $8000 leaving $4000 co-mingled with the existing cash reserve. Now I've doubled my exposure in the equity and let AIM help me do so in an efficient way.
An example of this is VTSS. I owned 1000 shares of it and traded it with AIM for over a year. As my "comfort level" increased with the company and stock price activity, I decided to invest more heavily. I moved some surplus $$$$ to the account and waited for a good time to buy. I increased my holding from about 1000 shares to 5000 shares in that one buy in early 1995. In that example, I exhausted the Cash Reserve completely with the purchase. As luck would have it, that was a wonderful time to be 100% invested in that stock.
All in all, I use AIM as the basic outline or business plan for my activity. That doesn't inhibit me from letting each "department" of my business take care of its needs individually. My Warehouse isn't a "one size fits all" place. AIM is excellent, better and more consistent than most investors ever dream of being. But using a Template such as PCA to test the limits of AIM teaches us that flexibility has real value for AIM. That's because not all stocks behave the same.
Best regards, Tom |
