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

To: matvest who wrote (14656)	1/29/2001 10:01:02 AM
From: Bernie Goldberg	Read Replies (1) \| Respond to of 18928

Hi, There are many things wrong with this picture. For starters AIM would not give you a buy order until Stock A drops to $8.13. At that point it would tell you to buy about 65 shares which would be about $528. Since stock B is a $15 stock you would buy 34 or 35 shares. (about $525). I don't understand why you would put in a buy order at 9 which you decide not to execute. I also do not understand how a buy order at 9 would not be executed if the price went down to 5. After you purchase of 35 shares of a $15 stock you would have: 500 shares at $8.125 = $4,062.50 35 shares at $15.00 = 525.00 Your total "mini-fund" would be worth $4,587.50 and you would have $4,475 left in Cash Reserve. At this point I would set up the mini-fund. I would go into Newport's maintenance section and would saysay that the number of shares was 700 and then go to the Fix a price section and correct the price to $6.5535 which is $4587.50 divided by 700. It is true that 90% of your portfolio is stock A and 10% is stock B. The next time you get a buy order it will most likely be because Stock A has gone down some more. You will then buy some more Stock B. In thinking about it I have come up with an answer to the italicized section above. You probably have your safes set at 0/0. I would recommend changing them to 10/10 as Mr. L recommends. You wrote: All future trades will be based on stock B, but I only have 33 shares to work with and the portfolio is heavily overweighted toward stock A. I would ask why. I would do my buying in Stock B until I had used up my Cash Reserve. Since you stock A has tanked your not about to be doing any selling in A until it starts back up. After all the cash reserve is used up you might even find that B was a larger portion of your fund than A. AIM takes more than one or two transactions for it to work its magic. Hope this helps Bernie

To: matvest who wrote (14656)	1/29/2001 3:16:37 PM
From: aptus	Read Replies (2) \| Respond to of 18928

Hello Larry, I receive many questions about this here at the Automatic Investor factory. I think that there are many misconceptions on how this actually works. Basically, according to RL himself, AIM doesn't care about WHAT equities you hold. It only cares about the VALUE of the equity portion and the cash portion of your portfolio. Let's look at two cases: In case I the equity portion of your portfolio is made up of one stock with a total value of $10,000, it is clear that when AIM recommends a purchase or sale you will buy or sell that stock. Now consider case II: a portfolio made up of two stocks, A and B, where the value of stock A is $5000 and the value of stock B is $5000. All other things being equal, AIM does not differentiate between case I and case II. However when AIM recommends a purchase or sale, it is up to YOU to decide what to buy or sell. At first glance, this appears to be a drawback, but in reality it is a huge advantage. Here's the reason. First, you are free to buy or sell ANY stock you like when AIM recommends it. As long as you purchase the dollar value that AIM recommends, you'll be okay. Therefore you can add new stocks when AIM recommends a buy or reduce your position in stocks you're becoming uncomfortable with (e.g. their fundamentals are changing in a way you don't particularly like) when AIM recommends a sell. Second, you can practice asset allocation techniques. If one of the stocks, say stock A, in your portfolio has increased significantly (so that it now contributes to 80% of your portfolio's value) you can re-balance your portfolio (i.e. sell some of stock A and purchase the same DOLLAR VALUE amount of, say, stock B so that stock A now contributes to only 50% of your portfolio) and AIM won't skip a beat. Third, if Stock A's fundamentals changed so that you are completely unhappy with it (e.g. the CEO was charged with Fraud and his "guidance" to Wall Street was based on pure fiction -- this actually happened last year with NCI) you can completely exit your position of Stock A (i.e. sell all your shares) and purchase an equal dollar value of a stock with which you are more comfortable. Again, AIM won't skip a beat because it doesn't care that you were in stock A and now you're in stock B. All it cares about is that the dollar value of the equity portion of your portfolio has not changed. Finally I notice many people concentrate on the number of shares they own. For the most part the number of shares and the share price are not important to AIM. The important part is the TOTAL equity value. So AIM doesn't care whether you own 1000 shares of a stock trading at $10 or 2000 shares of a stock trading at $5. To AIM it is the same. There is, however, one place where share price comes into play... and that is if AIM recommends you sell $500 dollars worth of a stock and your share price is $1000. Since you usually can't sell half a share, you'd have a problem. So share price does play a role in that case, but in most cases it doesn't matter. Regarding the number of shares, AIM simply doesn't care. The only reason you should care is if your brokerage charges you more when you buy or sell more than a specified number of shares. Otherwise it doesn't matter. I hope this helps a bit. regards, mark.