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Re: Feedback to Portfolio Control from AIM directed Buys...........

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OldAIMGuy Member Level  Thursday, 07/19/18 11:15:49 AM
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Re: Feedback to Portfolio Control from AIM directed Buys...........

Q.........
I am new to AIM but I did note that when starting out the PC equal 100 % of shares x price whereas the addition of shares is only 50%. As Shakespeare would have said there seems to be something wrong in Denmark.

Could someone please explain.

A.........
Hi C10 and Welcome, Re: Portfolio Control incremental increases.......

One's initial purchase is, as you said, fully represented with the Portfolio Control value. If your Aunt Lilly were to pass on and leave you a bunch of money and you added it to the existing portfolio, you would add to PC in the exact amount you spent on additional shares. That's all well and good. This is because the new shares are being added as a non-AIM directed purchase.

If you think of AIM as a reward system for good behavior, the incremental bump to PC starts to make sense. The value of your holding has dropped well below the Portfolio Control value and AIM is suggesting that this would be a good time for a prudent investor to add to their position. The reward comes in the fact the entire holding's value needs then to rise to an amount somewhat higher than the initial PC value before any sell signal will be generated.

In accounting terms you might get a sell signal below your initial cost/share (FIFO basis) but it will always be at a profit above your most recent purchase price (LIFO). Without the incremental adjustment to the PC during the buying events, you are essentially "Ladder Trading" - you'll buy and sell at specific prices but the price targets never change. PC upward adjustment after a few buy/sell cycles will allow the overall portfolio to grow in value even if it's range-bound in its price cycle.

So, things may be a bit off in Denmark, but they're fine on Wall Street!

Best regards,
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