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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: labestul who wrote (10402)	3/8/2000 4:34:00 PM
From: OldAIMGuy	Respond to of 18928

Hi Barry, I think that the majority of AIMers here have reached the same conclusions as you and Mr. Lichello reached - there's a point at which an order is not worth the time, effort and expense to execute. In another section of the book Mr. Lichello mentions that a practical lower limit to an order's value is approximately 5% of the equity holding. So, in this case, he'd recommend with a $5000 holding, a $250 minimum order size. Of course in this case any 100 share order over the value of $2.50/share would qualify. I have added my own qualification to this - keeping commission costs below a certain percent of the transaction cost. With today's nearly full service discount brokerages, it would seem bad business practice to pay more than 5% of the transaction's value to a brokerage. If we assume a $50 commission this would require the minimum order size to be $1000. At $12 commission then the minimum order size would be $240. From a practical point of view, I rarely trade less than $1000 just because it takes just as much time to calculate my taxes, etc on a $1000 trade as it does on a $250 trade. To keep my pay scale in line, I have raised the minimum value of the transaction high enough to make it worth my time. Using this bit of rationalization :-), the $5.00 stock would first trigger an AIM trade of at least $1000 at $3-5/8 and would buy 279 shares. Next stop on this declining price would be at $3-1/8 where an additional quantity of 355 shares would be purchased. The total is now 634 shares extra. AIM would then be getting serious about buying and would want another 363 shares when the price hit $2-3/4. So, setting a higher minimum order size certainly slowed the number of buys, but would have frustrated the AIM user by never even making the second buy at $3-1/8, if we stick to your original example where the price stops dropping at $3-1/4. As with many things, there's a point of diminishing returns where frequency of trades, because of costs and other factors, ceases to do us any extra good. At best I can say that this is a personal decision as to how far to take it. For the person just starting an account with a total value of $2500 divided between a stock fund and cash, a one thousand dollar minimum trade would paralyse AIM. On the other hand, the person that started his account with 5000 shares at $5 would have almost as many transactions as your example when using a $1000 minimum, but the total cost of commissions as a percent of transaction costs would be minimal. So, yes, there's other things to think about. We want to keep our trading "cost efficient" and yet we don't want to miss too many opportunities. In both the Newport and StockSystem software, you can set the minimums in both shares and dollars. This eliminates lots of false starts. Best regards, Tom

To: labestul who wrote (10402)	3/8/2000 5:03:00 PM
From: Bernie Goldberg	Read Replies (1) \| Respond to of 18928

Hi, In addition to Tom's answer I would like to add my interpretation of AIM by the book. Mr. Lichello says to ignore any trade unde $500. When I set up Newport I set the minimu transaction to $500 and the minimum # of shares to 5% of the number of shares that I own. I set up PCA with a minimum of $500 and ran a simulation based on the conditions you set up. I got results different from yours; Trade 1 -----150 shares at $4.00 Trade 2------148 shares at $3.875 Trade 3------166 shares at $3.50 Trade 4------195 shares at $3.25 Trade 5------237 shares at $3.00 Trade 6------189 shares at $2.875 Trade 7------183 shares at $2.75 Trade 8------196 shares at $2.5 At this point there would be only $261 left which would not have satisfied the conditions for another purchase. What I would do in this case would be to purchase an extra 104 shares on the last purchase bringing the total to 300 shares. What I come up with is 1,568 shares purchased in 8 transactions after the initial purchase. In addition the final 20% of them were purchased at a 25% lower price than in your example. At this point there would naturally be no profit since there has never been an uptick in the price. However, following Mr. L's advice you would have accumulated about 800 shares more to give you profits on the way up when it does occur. I think you may be taking the two different methods of investing and somehow intermingling them. Bernie