Curious that this question of "What to do with dropping prices?" when one is AIMing also came up a few days ago from one of the Dutch Vortex program users. . .he switched to a "waiting mode" and asked me what else to do. He had liquidated more or less on the previous tops. I said that was a perfect AIMing move. . or rather an AIMing unmoved (doing nothing). The essential idea in AIMing is to Sell high and Buy low and waiting a bit in a down trend is the smart thing to do. . .the investor calls the shots on the buy interval with an "overlay" management technique. . .something like the MACRO or other "waiting games".
One technique that I strongly advice for a falling market is to apply the TurboVest Method. . .but only with "stock" that cannot go broke like FOREX or Index certificates and the like(turbo=super vortex):
1 You have a portfolio value of say 100 at the start of the down trend;
2 Wait till the market drops a bit, say 5% or 10 %
3 Carry out the usual Buy Advice. . .this works exactly the same for regular Aiming as for Vortex Aiming;
4 Keep doing this with every drop in price to get an Buy Advice. Most AIMers are afraid of running out of cash but that is a good thing in AIM;
5 When the Reserve = 0 keep buying on the usual routine and use the credit on the value of the portfolio (borrow money!). . .the total portfolio value will have decreased as usual but you have gained a large number of low-priced shares. . . in most cases there will be some recoveries and then you can sell some in between the buys;
6 Keep buying as usual on the way down until you are out of borrowing capacity (stock value = the loan). . .you need some extra resources to cover the loan so that your stock will not be in danger of having to be liquidated. . .poor people should not invest so this technique is for people with reserves;
7 The stock index or say the US Dollar WILL recover in price after a drop. . .even if it stays lower than before it will continue fluctuate.
With this TurboVest method you will have accumulated a very large number of low priced stocks. The market can easily drop to 40% or 50% from its value before you get to the break-even point (Stock value = Loan Value). At this point the market has reached a crash-position and this happens not very often at all, so the chances are high that you never even get to the break-even point and that market recovers after dropping only 30% or less! Reap the profits in the Recovery Run.
The leverage with this method can be as high as 7 with a 75% borrowing limit on the portfolio value . . .borrowing $ 75 on a $100 portfolio. . .in the end with a starting portfolio value of 100 you can borrow 700 and not get into negative portfolio-value territory. . .this is quite dependent on the price drops at which you execute buys (small steps are better that large steps. . .but cost more on trading fees)!
Most people find it hard to believe that this is a SAFE and extremely effective method. . . obviously one should not do this with risky stocks but only on investments that can not go to zero value.
This is my advice for a run with dropping prices. One can also invest in put-options or regular turbo's and various other derivatives. These also are risky and if your expectations are not fulfilled you lose the investment. With TurboVest you bet on the market going down to say 50% and then you know that you can survive a 50% drop but you also know that a 50% drop almost never occurs. . .so 95 % (or so) of the time the market will recover before it hits the 50% drop.
TurboVest is a beautiful Game!
In my Dutch book the TurboVest Method is shown step by step in Chapter 11, illustrating how the leverage factor=7 is achieved. In the English Short version it will be added as an example in Section 8: Portfolio Growth with Dropping Stock Prices.
