Christopher,
If you think about AIM in very simple terms, it would seem like you would want to completely deplete you cash reserve after the initial purchase at the exact point where the stock bottoms and starts turning higher and before you sold a single share. That way you buy the maximum number of shares at the lowest possible price before the eventual sells start to kick in and replenish your reserve.
Conceptually I believe that is right. In reality, the actual starting point to buy any particular stock is made more difficult by your:
1. initial commitment level
2. cash reserve settings
3. buy safe level
4. minimum trade requirements
Once you determine the these parameters you can easily figure out by trial and error where to start buying a stock assuming you can guess an eventual support level that will hold.
In the case of COMS, it is quite clearly nearer the bottom of the chart than the top right now, but if you have selected reasonable levels for initial cash reserve as well as a buy safe point, then even if COMS fell into the very low $20's you would be ok and still have some cash reserve left. What would happen if you guessed wrong about the $20 support level and COMS continued to sink? If you run out of cash, AIM grinds to a screeching halt remember. If you depleted your cash reserves at the $20 level and COMS sank to $10 and then fluctuated from $10 to $15 for the next few years,you wouldn't make a dime even though a new AIM'er who started buying at $15 would make a ton of money on those same fluctuations.
After my experience paper trading the oil service sector, the ability to deplete the cash reserves at the exact bottom is harder to do than you might think. ;-)
Quite a number of people have speculated what the outcome of AIM would have had on Yahoo! or some of these other high flyers. The flip side of the coin is what if you buy the next high flyer near the top, AIM it until your cash reserves go to zero, only to see it sink another 75% because the wind came out of your high flyer. If you buy a stock and it falls below the point where your cash reserves are depleted, you still have a bad investment. The internet is like biotechnology of 10 years ago with lots of promise, some really big winners, but eventually only a few larger players survive. If you pick a loser, you still go broke.
After my experience paper trading AIM in the oil service sector and having this exact phenomena of depleting the cash reserve too soon, I think it is more prudent to buy stocks which have high eps growth and a track record so even if you make a mistake in the initial purchases, the eps growth will eventually bring the stock price back into the range where AIM can start to operate again. That's just a personal preference.
----
Dave |
