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

To: JZGalt who wrote (5025)	7/12/1998 10:19:00 AM
From: Jim Battaglia	Respond to of 18928

I only look at recent history on the high...Within a year. All stocks should start between 50-33% cash levels at its high point. But why would anyone be 50% in cash if the stock is down 50% from its most recent high (within the year) if the fundamentals are still in place and you know a company is strong enough to bounce back and not go broke? If you read Lichello book you will notice that Rockefeller was at 85% equity when the market was at the bottom while managing his trusts. I am not suggesting that the Rock was using AIM, but he sure understood when to have more money in the market. That is the reason for TVR.

To: JZGalt who wrote (5025)	7/13/1998 11:57:00 AM
From: Bruce A. Bowman	Respond to of 18928

Hi Dave- Since the AIM algorithm is based on retracements in both directions, the setup for cash reserve needs to account for the range of that retracement. The example stocks you mention are of the type I said are difficult for AIM to handle well: they go up endlessly. Even in a stock that moves up like that there's a need for a range. Somewhere you have to estimate the cash you need to handle buying as the stock retraces, even in the case where the retracement is small, otherwise you've crossed over to b/h. In the case of CSCO, I just drew parallel lines on a weekly chart that captured the action for the last 18 months (could have used 12 months) and found a range of 93 - 67 or 26.00 (todays prices). This represents a 27% cash reserve. In all likelihood, CSCO will continue up unless it takes a hit like it did in 1997. If it does continue up, AIM would have you sell which would increase your cash reserve. Since I picked a worst case scenario, the recommended cash reserve is as high as you'd want to go on a historical basis. So as price advances you would do adjustments to the portfolio control instead of taking the sells. In essence you transition back and forth between AIM and b/h via the benchmark of cash reserve. Given a year of AIM performance you can then decide where you want to leave cash reserve, just remember that CSCO's 1997 will repeat and you have to have the reserve for that. Now you're thinking "I could be making $$$ on that reserve!" Yeah, you're right. The necessary response is that AIM's goal is to reduce risk as measured by exposure to the markets. AIM takes chips off the table as price rises and puts more down as price falls: "Buy into weakness, sell into strength". The conservative AIM approach preserves cash so that you can buy on a retracement. That cash does collect some interest in a MM fund... it may not be the same as market returns, but it's always there whether the bottom falls out or the market turns choppy. And it covers commissions. Generally speaking, I think you've captured the intent of what AIM is supposed to do by compensating for your somewhat special application. You know the oil sector better than probably any of us and you can use that insight to establish a good set of operating parameters. Just keep in mind that AIM doesn't care about either time or projected growth. It only cares about current price relative to portfolio control and account value. Within those constraints, there are a lot of ways to apply AIM with special adjustments. You have to find a combination that works for you and that you're comfortable with. Bruce