A.I.M. Users Bulletin Board

[SFSecurity]

Hi OAGuy & Jim, OldAIMGuy is right that it is a math approach issue - I don't really see it as a problem as long as you are aware of what is happening.

When you use the online calculator, http://web.archive.org/web/20120609073103id_/http://www.aim-users.com/calculator.htm , and use these figures, $5k stock @ $10/share - 500 shares, 10% buy and sell safe, and 10% minimum stock sale (i.e. 50 shares to start with) you get the following when it does the calculations:

@ Stock Value Above $6250
Min Sell Order Size $625
Min Sell Price $12.5
Min # Shares Sell 50

@ Stock Value Below $4167
Min Buy Order Size $417
Max Buy Price $8.33
Min # Shares Buy 50

So it is a 25% change going up to a sale and only 16.67% change going down to a buy, at least the way I learned math, starting at the $10 point and looking down rather than the $8.33 point and looking up. As you can see it is a matter of perspective. I look at it as a "loss" when I start at $10 and get to $8.33, but the math is set up to look at it from the bottom and going up. ~$8.33 * 1.2 = $10.

The issue is that the order of the calculation is the same up or down which creates the difference. I haven't looked at this in a while so I don't recall exactly where in the calculations this occurs and I'm feeling a bit brain dead today so I won't commit myself to an error. As I recall it is the use of 1.1 versus .9 for one or the other of the way it is calculated.

You can "fix" this for the way it is calculated by the "standard" spreadsheet by adjusting your buy to 15% and sell to 6.65% which gives you the following:

@ Stock Value Above $5999
Min Sell Order Size $600
Min Sell Price $12
Min # Shares Sell 50

@ Stock Value Below $4000
Min Buy Order Size $400
Max Buy Price $8
Min # Shares Buy 50

I.e., $10 + 20% for and actual sell price of $12 and $10 - 20% for and actual buy price of $8. You still wind up with two different values for the $ amount for the buy and sell as you can see. If your goal is to have the same $ value in a buy or sell, then you have to use both a split buy/sell % and a different % of stock for buy and sell. I find that too hard to bother with.

Or you can do what OAG suggests and use the minimum sale to be 10% of Portfolio Control (PC) which does not really work starting out.

So, you are right, there is a basis toward buying, long term. Good, bad? Given that the stock market tends to be biased up I think this is probably good.

The other issue is that AIM, as traditionally done, requires a wide trading range - more than 2-1 - or you never get either a buy or sell depending on where in the 52/104 week range you buy in at - at or near the high or at or near the low. This is not a real problem if you buy in at the middle and the range is great enough. However a lot of the ETFs have a relatively narrow range. For example XLP has a 52 week range from $43.69 to $50.95 or about 17% from bottom to top. XLF's range is from $21.55 to $25.62 or about 19%. With the standard settings and buying in off the high or low you'd never get either a buy or a sell.

If you restrict yourself to those with enough range over a couple of year period then you wind up being excluded from a lot of possible positions unless you are looking at things from a buy and hold perspective.

If you use 0% buy and sell safe with a minimum of 10% of stock then the buy is at $9.09 and $11.11 sell price, a 22% difference.

If you use (-3%) for buy/sell safe you get a range of about 15%;

@ Stock Value Above $5376
Min Sell Order Size $538
Min Sell Price $10.75
Min # Shares Sell 50

@ Stock Value Below $4673
Min Buy Order Size $467
Max Buy Price $9.35
Min # Shares Buy 50

The dollar amount of each trade is still in the right range. I know this is screwy but it works when working with a narrow trading range position.

Best,

Allen

This e-mail may, and probably does, contain factual errors as well as errors of logic, organization, grammar, and spelling. They are included at no charge. However, you're invited to make a donation.