CIO, SignalPoint Asset Management, 2008 to 2024, Retired
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Q) Hi Tom!
Happy President's Day. :)
I've been backtesting AIM and learning a lot.
1) question for you:
During a severe bear market (2008 scenarios), what do you do when you're running out of cash to buy?
Do you get more cash from other accounts?
Or let it weather the storm and wait for months until it sells and generates cash again?
For example, if I run GOOGL from Nov 2007 to Jan 2010:
The cash portion gets drained quickly and is cash-negative for about 7-13 months.
(Depending on initial cash position of 30% to 50%)
What do you do in the months where AIM wants you to buy, but is out of Cash portion?
2) Also, related to my previous question about running out of cash during bear markets:
You wrote : "I now have a habit of adding 5% to the Buy SAFE each time I buy. That helps to slow the cash burn rate a bit. Then, when selling starts to occur, I reduce the SAFE back to 10% from wherever it was after the buy cycle."
Do you have a cap for Buy Safe %?
And how many sells does it take before you reduce Buy Safe back to 10%?
Thanks!
A:
Hi CCL,
1) Good question! It's painful to run out of cash for AIM users, but far less so than for Mr. Buynhold. Those less than enjoyable times can be improved slightly with a technique I've been able to use a couple of times. I call it the "Black Swan Method."
With the Black Swan method I take the last buy price and divide it by 0.80. That becomes my "next Sell price" for a minimum size trade. This can be quite a bit lower than what AIM would be suggesting as a Sell target price. Should the price rise to this new, lower target I'll sell the minimum shares designated by the percentage of Portfolio Control I've been using. This is even though the price/share is lower than AIM suggests. Once that sale has been made, I then won't sell again until AIM comes back into selling range. If the price/share continues to rise, eventually AIM will sell and start to accumulate cash again.
However, it's possible that the bottoming process of the market will bounce a few times. I use the last Buy Price that drained the cash to zero again as my buy target. If the price drops to that previous price, I'll buy the minimum amount once again. Once more I'll set that same non-AIM target in place for selling a minimum amount of shares. This way, if the bearish period before recovery continues for a long time, at least I'll be able to clip some coupons profitably while low on cash and awaiting the Market Pendulum to swing back toward its mean.
I've not had a lot of these black swan events occur, but this method has worked well when it has occurred.
There is another possibility that I've never used. It's the use of Margin Buying. While I've studied it I've never used it. Most investors are 100% invested at market tops where AIM users are not. Some are using Margin buying even near market tops and are 150% invested (100% stock + another 50% borrowed)! We AIM users buy into the market weakness until our cash is exhausted. By coincidence, many times that will be around the market bottom. If we were to continue buying by borrowing on margin but using AIM as our guide, it looks potentially successful as a way to continue buying. If the market is truly bottoming, then we won't have margin exposure for very long. AIM will get back to selling and back-fill the margin position and then continue selling and rebuilding our cash reserve. Like I said, I've never done this in all the years I've been using AIM even though theoretically it looks like a good plan. Most investors use Margin at the wrong time - near market tops. This theory says AIM's far smarter and would only consider using Margin at or near market bottoms.
You can back test this idea by letting your spreadsheet go to negative cash reserves as AIM continues to buy on Margin. It should shorten the overall recovery time. Proceed with CAUTION!!!
2) As soon as AIM reverts to selling, I reduce the Buy SAFE back to its standard 10% level. I've had a couple of individual stocks take the Buy SAFE as high as 40% with many sequential buys. At each level, I buy only the minimum amount at the suggested price indicated with the higher Buy SAFE.
AIM can and does run out of cash periodically. CASH is the Precious component and lubricant for the AIM engine. AIM CANNOT run out of shares, however. Since we're selling only a portion of the remaining shares, the shares are inexhaustible.
Best wishes,
OAG Tom
Hi Will,
I use PC percentage on both the buy and sell side as the minimum order Value. As mentioned, the share count buying will be larger than the share count selling at that minimum.
OAG
Hi Will, Re: Min Order Value as a percentage of Portfolio Control..................
It's worked for me over a long period of time.
As a side consequence, both the buy and sell side orders are the same dollar value, but not the same share count. If you usually sell 5% min of shares, you'll buy about 6% more shares at the target price with this method.
Have a great weekend,
OAG Tom
Thanks Steve,
Re: Conserving Cash with Consecutive buys.........................
I let my minimum order size be a percentage of Portfolio Control, so each buy increases the size of the minimum order. That makes AIM look for a slightly lower price for the "next buy."
I also still am pretty solid on the 30 day delay between sequential buys. That helps when there's a long term bearish period.
For some years now I've also been adding 5% to the Buy Resistance (SAFE) with each sequential buy. That also forces AIM to look for a deeper discount between buys. (Then when directions change and I get my first AIM directed Sale, I revert the SAFE back to 10%)
Maybe Will can use some of these ideas as well.
Thanks again for the link,
OAG Tom
Thanks Steve,
Where did you come across Mr Hicks and his AIM interest?
OAG Tom
Ford may dump "Self-Parking" function from their fleet.
As far as I'm concerned, it's 9 years too late. I have it on my 2015 Flex and have never used it other than when the salesman demonstrated it long ago.
https://www.msn.com/en-us/money/companies/ford-considers-axing-car-feature-that-could-save-company-millions-per-year/ar-BB1hWnqP
OAG
Thanks!
OAG
DING DING DING DING DING!!!!!!
......and we have a new WINNER!!!!!
Grace Bay Beach, Provodenciales, Turks & Caicos!!!
One of the world's most beautiful natural wonders.
The Elves ha e fired the forge furnace to strike a new
SECRET DECODER
fore you!
Best wishes,
Tomaso Vitello
Think of the Beach Boys song, "Kokomo" and all the places mentioned. I'm one place they skipped!!!!
OAG Tomaso
Just a little north of East take plenty of provisions as it's a long sail to see the canaries on those Islands.....
OAG Tomaso
CLUE.....
A short swim south would take you to the second oldest republic in the western hemisphere. It was home to the Baby Doc at one time.
OAG Traveling Tom
Good investigative work EU,
More clues are coming.
The WINNER will receive the coveted "AIM Secret Decoder Ring"
How about a photo clue?
OAG Tomaso
Your compass took you a bit too far to the west.
From where I'll be, if I flew further South, I could speak Dutch, but that's too far.
CLUE.......
No volcanoes here.
Not a boat - but not a blimp, just another jet.
Correct general direction.
Official language is wrong, however.
CLUE....
(Or is that Clouseau???)
Pirates used to hunt Wild Boar on an island south of Vitello's destination. They would salt and smoke the pork to preserve it. The French sailors called the preserved meat "boucan" and we refer to it as Bacon. Therefore those who made and ate it were called Boucaneers. That was anglicized to Buccaneers (but not the Tampa Bay variety).
I'm sure this will help everyone's navigation skills!!!!
OAG Tomaso Vitello
CLUE....
(Or is that Clouseau???)
Pirates used to hunt Wild Boar on an island south of Vitello's destination. They would salt and smoke the pork to preserve it. The French sailors called the preserved meat "boucan" and therefore those who made and ate it were called Boucaneers. That was anglicized to Buccaneers (but not the Tampa Bay variety).
I'm sure this will help everyone's navigation skills!!!!
OAG Tom
Not St. Marten, (sp).
More like Rowan and Martin!!!
Hi Jake, Let's hope the investment world can stand it with my status change!!
Thanks,
OAG Tom
Hi Jake, Let's hope the investment world can stand it with my status change!!
Thanks,
OAG Tom
Welcome to the Latest Episode of "Where In the World Is Tomaso Vitello!!!"
Tomaso and his faithful sidekick will be "Leaving on a Jet Plane" tomorrow. Their first stop will be in the land of Ponzi Speedboats and Vice. After a short layover they'll be catching a ride on another heavier-than-air craft toward places known to explorers and pirates. Privateers stopped at their destination in the past to harvest sea salt for curing their provisions.
Tune in Daily for clues...................................
Best wishes,
OAG Tomaso Vitello
Daily volume continues to be quite high with the recent price movement.
OAG
Hi Will, Re: RMD..............
"Required Minimum Distribution"
It's the amount us old geezers have to take out of our Retirement Accounts annually. The amount is based in actuarial tables of how long we're expected to live. The idea the government has is to have us deplete our individual retirement accounts by the time we're fully depleted!!!!
OAG Tom
Here's the v-Wave histogram for this week. JDerb will be reporting the numbers here soon.
Steady 3-5 Year and the 18 Month is coming back into line.
Note the S&P500 is now at a record high along with the Dow 30 Industrials. The Nasdaq Composite still has a little work ahead to reach the late 2021 former high.
Keep your eye on the target and use careful AIM. Don't forget to compensate for prevailing winds!
OAG Tom
Hi EU, Re: Moving Averages and trading.................
Generally I use the 26 Week eMA as I find by coincidence that I'm usually disbursing shares above that line and accumulating shares below it. Along with that, another coincides with my trading comes with the Williams%R value. I'm generally disbursing shares when the W%R is above -20 and accumulating shares when it's below -80.
These give me comfort when they're in sync with my trading. My trades are still ruled generally with the Lichello AIM model.
Best wishes,
OAG Tom
Over 40MM shares traded so far this AM.
That's about 10X normal volume for MESA..........
Share price is now back to around the 100 Day eMA.
Amazing,
OAG Tom
Is this what they call a "Gap Up" event???
OAG Tom
That's pretty nice after market activity on the MESA shares.
https://ih.advfn.com/stock-market/NASDAQ/mesa-air-MESA/chart
3.6MM shares traded for the day.
Roughly a 61% gain over the previous close seen in after hours trades.
Best wishes,
OAG Tom
I see I didn't post the rest of my usual portfolios as of year's end. Here they are:
International ETF Portfolio
+13.3% YOY
(17% Cash in Reserve)
10 Common Stocks Composite
+20.05% YOY
(19% Cash in Reserve)
Simple Contributory IRA Portfolio
(20% Cash in Reserve)
All finished the year with gains. Not all were at all time highs but all did well enough.
Best wishes,
OAG Tom
The stock is trading in my personal "hold zone" right now. Above $56 I'll part with 10% of my shares and I'll add close to 12% more shares if it dips to around $41/share.
OAG Tom
Hi T, Re: AIM and Capital Gain Tax.........................
In general it's been my experience that after the first 12 months of AIMing in a taxable account essentially all gains will be considered "Long Term" on a FIFO basis. Most of my stocks I traded over the years the 'inventory" took about 3-5 years to move through my "equity warehouse." So, if the Tax Man is offering a discount in tax rate for long term cap gains, AIM can be very effective.
Best wishes,
OAG Tom