Hi LC, on Reverse Scaling: it is really a very nice idea, and for stocks in an extended updraft a very much better idea than AIM. I always find it a pity when people ask me to be surprised at the results of some calculations I should perform. I have already done those calculations ages ago, and was pleasantly surprised then. Perhaps you meant that? To be more specific, Glett proposes to enter a position in a stock you have selected, and then to add the same amount every time the stocks gets 50% over the last buy point. The stop loss is 33% under the last buy point. Suppose you enter at $20:
$20.00 add $1000 - if stopped out at $13.33 - return -33%
$30.00 add $1000 - if stopped out at $20.00 - return -17%
$45.00 add $1000 - if stopped out at $30.00 - return +6%
$67.50 add $1000 - if stopped out at $45.00 - return +35%
$101.25 add $1000 - if stopped out at $67.50 - return +75%
$151.88 add $1000 - if stopped out at $101.25 - return +129%
$227.81 add $1000 - if stopped out at $151.88 - return +207%
We now have a 10 bagger, so let's stop here. Actually, I see no problems here, considering thast these are worst case scenarios. Of course the returns get dragged down by adding at higher levels, but this only applies to the % return, the $ returns will be boosted.
You also attack his margin scheme, but Glett is careful to point out that his is actually a very safe system, where it is completely impossible to ever get a margin call. And the returns will be a lot higher on margin. From the $151.88 level onward they outstrip the buy and hold return.
And Glett also mentions that you could use his system just to adjust a stop and never add money.
And in case you want to point out that the chance of a 10 (or even 5) bagger is small: Glett advocates to pick your stocks carefully, and to pick a basket of 5 stocks as absolute minimum, but preferably 10. One big winner will be nice enough.
Regards,
Karel
