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

To: OldAIMGuy who wrote (14098)	12/26/2000 5:25:11 PM
From: aptus	Respond to of 18928

Hello Tom, Hope you had a Merry Christmas. As usual we had a wet but mild day here on the West Coast. As to the question of dividends, you'll hear no argument from me as to not changing PC if there is an immediate devaluation (because the total equity value does not change, much like not changing PC when performing a 2:1 split). On the other hand, my opinion is that if the total value of the equity portion of your portfolio changes because of the dividend, then PC should change accordingly (but that's a bit off topic regarding my response to Larry's original question). So back to Larry's original question... Here's the reason I think dividends (of the Kind RL was referring to on page 206 in the 3rd edition) need to be treated as a new cash infusion. Please note that I've based this on a logical analysis of the (albeit somewhat fuzzy) rules set forth by RL. 1. RL states that you can remove dividends from the AIM account with no changes to PC (or any other AIM variable). It also appears that you do this to cover living expenses (when you do remove dividends from your individual stocks/bonds, do you adjust PC?). Since dividend inspired cash can be removed, it has basically the same effect as if it was never paid (at least on PC and other AIM settings). 2. Any new money put into the AIM account should be done according to the rules specified on page 213 (i.e. some in stock and remainder in cash then adjust PC by the amount put into stock). Therefore we can go through the mental exercise of removing the dividend income (which according to #1, above, does not affect the AIM account settings) and then investing it back into the AIM account (whether these dollars come from the dividend or somewhere else is irrelevant once we've used #1 to take the money out of the AIM account). The result is that we have new cash being placed into the AIM account and thus #2, above, applies. So some stock must be purchased and the PC adjusted accordingly. I'm not suggesting that all AIM BTB users do this (or are required to do this), but strictly according to RL's rules, this seems to be the most logical course of action. Again this is for dividends covered on page 206, any dividend that devalues the equity proportionately is governed by the RL's rule on pages 213 and 214 as you stated. Any comments would be greatly appreciated. Thanks and regards, mark.