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

To: Bernie Goldberg who wrote (17111)	10/19/2001 9:06:10 AM
From: rgammon	Read Replies (2) \| Respond to of 18931

Bernie, When we discuss buying CEFs as an income producer for the family unit, a holding that we fully intend to keep for years, then the 'cheaper' we can buy them, that is selling at a discount to NAV, we are acting wisely. Wisely in that we are buying when the sale price seems opportune. I have ZERO disagreement with this position. When opening a position in a CEF that will be BOTH an income producer for the family AND an AIM instrument, we have to consider our trading frequency, the expected long term size of the holding, and the volatility that we expect to experience with this holding. If the initial purchase is expected to be the largest single purchase that we will make, we still want to buy when prices are 'cheap'. Again, I essentially agree with your opinion in this case. Now, this is where my point is being made. Our intent is to add a fixed income component to our portfolio, a holding that bridges the foundation and the middle layers of our investment pyramid. This component is one that we will grow using our AIM tool. The income will be used to fund other investment choices. We have carefully examined the volatility and made choices for SAFE, min trade, and Cash Reserve that seem appropriate for this investment. We have made our choice on trading frequency. Now, we only need to select our entry point. The math of AIM tells us that our entry point relates only to the size of our cash reserve at the start. 4 or more cycles later, we'll be at essentially the same point, regardless of what price we chose to make our initial purchase. This is true also with stocks. High PE stocks can make good AIM stocks, their volatility plays right into the AIM investor's tool kit. We can be just as effective with our long term AIM when we make our initial purchase when the PE is near the peak (so long as we adequately fund our cash reserve). This is at the heart of the power of AIM, we no longer have to worry about whether current prices are 'cheap' or 'expensive'. Yep, this flies in the face of buy low / sell high. It is very easy to demonstrate in an AIM modelling program or an AIM spreadsheet that this is true. Buy from the Scared and Sell to the Greedy IS what we will be doing with this AIM. All of our AIM actions from the entry point on will be buying when the discount is near its max level, and we'll be selling when the discount is near zero (maybe all the way to a premium). I am NOT abandoning this concept. All I am saying is that in the long term, it doesn't matter whether our next expected action based on our entry point is a buy or a sell. Your viewpoint appears to be that it DOES matter, it IS important to make the initial purchase when prices are 'cheap'. I recognize this position, emotionally, it does help to see that first sell. However, the tool kit we have with AIM is supposed to help us avoid emotional reactions and decisions. Robert