Hi Grabber, Knowing when to leave a stock behind is harder for AIMers than for others, I think. In my own case almost every single stock in my inventory is profitable (I think only ICA is currently showing a loss). If we assume that after several years of AIMing, we're almost always profitable in every one of our holdings, then how do we judge what to sell and when?
Lots of times non-AIMers will use a "Stop-Sell" order to attempt to limit down-side risk. This runs contrary to AIM, so probably wouldn't be used. I think we should stick to fundamental reasons as anything technical would be too short term in nature as to work well with an AIM account.
Part of understanding when to exit is understanding the overall business cycle. New companies arrive on the scene, grow rapidly but have erratic earnings, steady in growth and earnings even though both slow, gain "respectability", mature and finally become business cyclicals. What do investors do?
Usually they ignore small companies with erratic growth and earnings, get a bit interested as the growth slows but earnings become more predictable, buy into the steady growth and sell when the company seems to have matured.
Although AIM can handle small companies wild price swings, we may need to keep the Buy and Sell Resistance levels very high to both profit and protect profits and conserve cash. As the company steadies in both growth and earnings, AIM will continue to manage it well and we can bring the Buy and Sell SAFE values back to more normal settings. We'll provide the inventory that everyone is craving at this time. Then as the company matures to more of a cyclical, AIM will still be happy to manage the investment.
So, the way I look at it, as long as the company's fundamentals still look good, especially relative to their industry group, there's no reason to switch horses. We may notice that as our Investment Pyramid grows, what were portions of the Peak are now more suitable as Mid-Section stocks. As they mature, they may even shift to Foundation Stocks with fat dividends, cyclical prices, but slow growth.
Last week GENE rose over 100% in just one week. I don't think this has EVER happened to me with one of my stocks before. Obviously the fundamentals didn't change that radically in such a short period of time. Is this the time to exit? It's up 10X in just 10 weeks!!! Well, ten weeks ago the account was naked of Cash Reserve. Now it's at 44%. So, in essence, I've "exited" the stock to some extent. By total value, the darned thing has moved from being one of my favorite "Peak" stocks to being a bit top-heavy to remain there. However, it did it all on its own!
What's actually happened is that the market has gone from ignoring this stock (formerly a Rodney Dangerfield issue) to being infatuated with it. Thank goodness I had some inventory to share with all those hungry lemmings! Please note that I'm currently running my Buy SAFE at 100%! Why?? Because I don't want to hurry to buy back shares I've just sold. With such a ballistic stock, it only makes some sense to me to resist buying back way above both long and short term moving averages. My good friend Harlan, on the other hand, DID buy some back after the price peaked at $27 a couple of weeks ago and dropped below $20. Now that it's gone ahead and soared to over $40, who's the greater fool?? As long as he continues to harvest, there's no reason not to plant.
Ask SoCal about my success at Exit Strategies! He's still involved with IDTI with the stock price in the mid $30s and I decided that the growth had evaporated and sold out (profitably) at $8!! As soon as I sold, they "replaced" the CEO and the stock's not looked back ever since! He'll probably also remind me of my great success exiting Roberts Pharmaceutical!
When was the right time to exit IBM, DELL, MSFT, TXN, WMT, F, SCH, XOM, etc? Really, with AIM, there was never a need to exit any of them. If we look at the really great stocks and companies of the world, why would we want to do anything more than just limit our risk exposure relative to the market's psychological profile at the time? AIM does this brilliantly and in a relatively benign tax form compared to selling out and buying back.
There was some talk of measuring individual stocks's volatility and adjusting AIM accordingly. We have to then make that measurement relate to the market's volatility. If our favorite issue is less volatile, but so is the whole market for some reason, then does it pay to sell this one and look for something else. It just might be the time of year or time in the business cycle or an economic cycle that's causing it to be less volatile than what we've experienced in the recent past.
BioTechs have been described as just now awakening from a seven to eight year Bear Hibernation. From a volatility point of view, from a Time-Value point of view and many others my money could have been better deployed for the last 7-8 years. The Cost of missing this recent rally would have been painful to my ego, however. :-)
I make overall decisions as an AIM user as to what areas of the market I want risk exposure for the long term. This is because AIM takes time to work! I wanted exposure in energy, biotech, pharmaceuticals, high technology, communications and brokerages. I still do. Not all of these sectors are going to be "hot" all the time.
Maybe it would be better to take Value Line's Top Ten Sectors and pick the best stock in each of those sectors. Each one would periodically be in the lead while others fell back. AIM would keep track of the overall race! AIM's bets are placed on each. However, the Race doesn't really have a finish as long as the world's Economic Engine is still running, only occasional pit stops. If the GRABBER LOGO is displayed on each of the top ten cars, then the TV cameras will almost always be showing at least ONE of your stocks being in the lead!
Gad, am I ever 'wordy' this AM. Better go cook some chicken embryos in animal fat to slow things down a bit!!
Best regards, Tom |
