Hi Tom, Going back to the Black Swan Rule, when you do the sale and capture the 20% or so LIFO on the lot, how do you manage your AIM spreadsheet afterwards? Do you just enter that as a regular sale (non AIM directed) OR do you remove those shares, decrease PC by the vale of those shares and increase the Cash?

Using Tom's Black Swan rule with covered calls.

I've been interested in dealing with this weakness of AIM: when we hit a deep diving stock AIM completely falls apart and may not recover.

My current deep diver is INTC and this is how I used the Black Swan rule. My INTC has a hold zone of 24.71 to 31.8 and now it's trading at 22.8. My last trade was a buy of 300 shares at 19 and my Cash is now at -40%, so my AIM program is locked up and who knows when it will recover.

So I used Tom's Black Swan Rule: 19/0.8 = 23.75, so I could put a sell order at that price for 300 shares to get a LIFO profit. Instead, what I did was sell 3 call options with 26 strike price, expiring in 2 weeks on Nov 1. If then the price goes above 26 I sell the 300 shares at 26 to make a 37% LIFO profit, even better than Tom's 20%. If the shares stay below 26 I get to keep the premium of 0.7, which works out to $210 in 2 weeks for the 3 options.

This way while my AIM program is locked up and not performing I can get some income from it.

Hi Tom, Would you mind reposting your "Black Swan Rule" for dealing with a stock that has dropped and depleted its cash supply?

Thanks
Adam

Hi Tom, I've always been interested in how people deal with deep divers. My method has been as follows. With each successive buys I increase my Buy Safe by 5%. That leaves a too large hold zone so I start using negative Sell Safe to keep my hold zone constant, usually around 30% for an individual stock. The spreadsheet works fine with negative Buy Safes. That at least keeps the AIM machine active and it does not lock up on huge hold zone. As the stock recovers I move my Buy and Sell Safes up by +5% keeping my holding zone to 30%.

Another method I've used in the past on a declined security is to look at the Cost Basis which Schwab lists in my Positions view. AIM has this tendency over time to keep increasing the PC/share around which the algorithm trades. The Cost Basis tends to be much lower, so reset my spreadsheet with PC/share equal to the Cost Basis. That puts new life into the AIM machine and still generates profit compared to the Cost Basis.

Adam

Even though the market is down from its peak I'm still not getting buys except for AAPL which I covered by selling a put one month in the future at 155.

Hi Toof, Thanks for sharing. It's probably OK to split an AIM into two accounts, though it makes things a bit more complex. When I've done that I added two columns to my spreadsheet to keep track of the shares in each account. There's an issue if one account is much bigger than the other, then when you get a trade, say a sell, you have to sell a smaller number of shares from the small account and a larger number from the large account; otherwise the large sell will overwhelm the smaller account.

IMO it's best to avoid such splits as it makes the process more complicated and difficult. In a smaller account it's best to limit the number of stocks/ETFs and not share the AIM machine with a large account. The trades should be proportional to the size of the account and yet not be too small to keep the algorithm efficient.

Adam

If the vealie does not erase the sell completely, rather than doing another vealie, I just increase the amount I increment the PC until it erases the sell. The effect is the same as doing two vealies but it's easier.

AIMing a security across different accounts. I'm wondering if anyone is doing this and your opinion. I have a few ETFs that are distributed over 2 or more of my accounts and I've AIMed them with one machine, and now I think this was a mistake and I'm separating the spreadsheets so each account has a separate spreadsheet. Combining makes the bookkeeping more complicated, but worst of all, since the accounts are very uneven, the buys/sells can overwhelm the smaller account. I could distribute the sell/buy across accounts but that just makes things complicated so now I'm separating the accounts and using a separate spreadsheet for each.
Adam

Hi Tom, That sunset shot looks nice. Exactly where is that and what's there to do?

Adam

About cash. My SWVXX Schwab money market fund is now yielding 4.67% which is a marked difference from before. Before, cash was deadwood bringing performance down, but now it makes much more sense to follow the vWave and hold the recommendation in cash. I think AIM works much better in times of moderate interest rates like today, than when the interest rate is zero.

I'll give my thoughts on this. AIM assumes that the security you choose, if it drops comes back up within a reasonable time for you. If the security slides and become a "deep diver" and you apply AIM to it you could be in big trouble. Maybe it would recover in 10-20 years but do you have that much time? Or it may never recover and AIM can sink a lot of cash and get locked up.

So I propose that a leveraged etf like SOXL is too risky to AIM. If you're going to use leveraged funds stick to something broad based enough that you can be confident it will recover, eg. a leveraged fund based on the SP500.

Hi John, The closest is my XLE energy etf which is one of the few that has done well and I recently had a sale though assigned covered call. I'm still really low on cash.

What about some place in Florida? New York State doesn't sound so inviting from here in S Cal. Las Vegas was not a bad choice.

I have the same issue with Schwab. At one time they automatically sold the MMF to cash now I have to do it myself. They do send notification and email that a trade has taken place so I sign in and make the sale of MMF. Otherwise you can end up with problems or in a brokerage account I go into margin.

Adam

Another boost to AIM that was not available to Lichello was the advent of the ETF. This is an ideal vehicle for AIM as it removes most of the risk of hitting a deep diver stock which was an achilles heel for AIM/

Hi Tom, let's say you have 4 consecutive buys and your Buy Safe is 25. If your Sell Safe stays at 0 the hold zone becomes very wide and it's unlikely you'll get a sell for a long time. What I've been doing is subtracting 5 from my Sell Safe so it become negative. So with a Buy Safe of 25 my Sell Safe would be -15.

Do you do that as well?

I don't know about you guys but I'm down to about 6% cash (mostly MMFs) with the recent buys and starting off with a low value of cash of 20% or so).

Hi Toof, I do 30-45 days on ETF puts and calls as I don't have the patience to wait 6 months. Also on the Put side that ties up your cash for 6 months. Mine are out of the money as well with Delta 0.2-0.3, which means most of them expire. The 30-45 days means Theta decay is on our side.

What I've been doing lately to improve my performance with AIM is sell Put and Call options. AIM requires a fairly large amount of cash sitting around, and also a large amount of ETF and stock which often does not trade for many months and then only a small amount. So I make use of this to sell cash-secured-puts and covered calls. This does change the nature of my AIM somewhat as at times I have to buy more stock than AIM would advise or sell more than AIM would advise. Also it creates new positions. So far I prefer this to buying ETFs with dividends that act as cash proxy, or using LD-AIM to make better use of stock.

Adam

So here in Southern California price of gas i just over $6 per US gallon and everyone is complaining but they insist on driving huge SUVs and trucks to move a couple of hundred pounds of flesh. And then there are very well-to-do people driving expensive Teslas who are laughing at the situation. The Russians are attacking Ukrainians. Biden is afraid of Putin. It's one crazy world.

Hi Tom, here in California gas is just under $6/gallon

Warren Buffett on Bitcoin,

I had my first AIM directed sell in a long time, in EIS my Israeli ETF. This was in a taxable account so I delayed the sale to allow for the 15% capital gains tax.

I'm also skeptical of cryptos and staying away. I don't really understand them and they're too unstable to be mainstream currency. Their main value is that they're hard to trace so they're used by criminals and on the dark web and to pay ransom ware. I know people who made lots of profit with bitcoin but it's a speculation not an investment and not for me.

Perhaps a better analogy with Bitcoin is the Dutch tulip bubble in her 17th century.

Hi Toof, I've not done puts yet. My strategy with selling calls is different and is somewhat disruptive to AIM but generates more income. Let's say you have 400 shares of an ETF and you have a GTC AIM sell order for 40 shares (10%). The current price is far below the AIM sell price. Sell calls on the 300 shares left between 30-45 days out, at a strike price such that there's about 25% chance the call will be exercised. In 1/4 cases the AIM program will be mostly sold out at a profit. I'm still experimenting with this strategy, but it's a way of generating income from a stagnant program.

Writing covered calls. I just started learning and writing covered calls on some of the stocks and ETFs I'm AIMing. I'll see how this works out.

Hi Toof, I never watched the Game of Thrones, so you have to explain

The wobble is a little frustrating to AIM as it's not enough for its slow machinery. I had one AIM directed buy in TECK (a small holding) and one buy in SCHD and ETF I'm accumulating to eventually AIM. My others are within their hold zones.

Hi Toof and Clive, I think AIM is a good portfolio management tool in retirement as long as you stick with low cost index ETFs or funds for the core. You just live off the cash and in the main it should spin off cash from the better performing sectors.

As to inflation, I increment my PCs in the broad based ETFs enough to compensate for inflation and the general trend of the market to increase over time.

Today was a down day but I had a sale in TDF. This is a Chinese closed end fund and my strategy now is to liquidate my CEFs so I'm LD-Aiming them. It's nice though to have a holding that moves out of sync with the market.

Buy today in FXI (Chinese ETF) at 43.7. First AIM directed buy in a long time. May be foreshadowing of more to come.

Hi Karw, In practice it's easy to see if your stock or fund is benefitting from AIM. If you see a number of buys intermixed with sells you know that AIM is helping you out. If you see only sells you know Buy and Hold would do better. And the worst case is repeated buys with no sells; this is worse than Buy and Hold. This last is a situation you want to avoid with AIM.

The market must be steaming hot as a GTC sale in FGD executed today. My next sale will be at 28.9.

I had three sales in the last two days: TECK, SCHF and VBR.

Teck is a stock I regret I bought and AIMed since Jan 2008. Looking at the chart it took a deep dive at the end of that year and being weary of AIMing a deep dive stock I did nothing and the stock recovered. Then it again took a slow deep dive till 2016. In Feb 2020 I had a PC/share 34.5 way above the stock price and I did not buy on the decline. Lately the stock recovered somewhat and I noticed that my cost basis per share was far below the PC/share so the get the AIM program to work again without making exorbitant buys I set the PC/share to the cost basis (as provided by the brokerage).

So now, with the renormalization of PC, the program is back in action. I set it up as an LD-AIM (total/real shares 1.7) as I plan to sell this off if it continues to move up.

Interestingly when I superimpose the chart of SCHW on the SPX over the last decade there is some resemblance in that it more or less follows the trend, but is much more volatile than SPX. The extra volatility makes it a good choice for AIM.

Hi Tom, SCHW is an interesting stock to AIM. It's one of the three solid brokerages of Vanguard, Fidelity and Schwab. I think Schwab has the best website and customer support. It had a dip at the end of Jan this year. Did you get a buy then?

I had a sell today in PRF in a taxable account. This was a GTC and the limit price ( and number of shares sold) had built into it the capital gains tax. So I insist that the profit from the sale is the same as if there was no tax paid. It also confirms the value of using GTC orders to sell with AIM as the random daily fluctuations trigger a close limit.

Hi Toof, I like your idea of selling covered calls to augment AIM.

About the idea of Aiming Leaps: I did that several years ago. The idea was that some solid stocks were just not volatile enough and the Leap would amplify the volatility. So it was with MSFT, at the time it was trading below 30 and not doing much, so I bought Leaps and AIMed them. That worked out and I made some money on it. But then I tried the same method on a paper company stock and this time the stock and the Leap dropped and the system blew up. I vowed never to Aim Leaps again. AIming individual stocks is risky enough but the Leaps amplify the drops and eventually expire much increasing the risk.

Hi Toof, I understand you're focused on having enough cash to buy towards the bottom of a major decline, but that's only part of the equation. The other side is all those years when the market is going up and you performance is dragged down by 0 interest cash. One would have to do a simulation with different cash setting to find the sweet spot. That also depends on your portfolio, as some individual stocks can fall much more than the broad market and pull in a lot of cash with AIM, and also how you manage a decline. I try to delay buying to preserve cash.

I can look at one of my ETFs, the mid cap SCHM, to see what happened during the March 2020 decline. I started with 28% cash before the drop and as the market dropped I did 3 consecutive buys ending with 12% cash. That was in spite of not following the 30 day lockout rule. I'm now back to 24% cash which I take as a good enough amount. Any more sell signals I'll take with PC increments.