Re: Hi Toofuzzy!
Thank you for providing the input regarding my issue.
"QUESTION :
Assuming you have been selling and raising cash while a security has been going up, why would you want to reduce cash and buy more when a security is at a high ?
Just wait for the next market crash to soak up the cash."
That's a good question and good advice. Normally, when my cash reserve is only slightly out of balance (1 percent or so), that's what I would do. I would sell a little less when a new sell order is generated, in conjunction with more aggressive buying when a buy order is generated. This technique brings Cash reserve % to alignment pretty quickly and easily. And it stays in alighnment nicely.
Once in a while though, my cash reserve goes out of balance drastically by 10 or more %. This happen because the channel inside of which I trade has shifted up or down substantially. My Cash Reserve % is calculated based on the relationship of the current price to the channel’s upper and lower levels. In that case I can’t use the technique described above, or rely only on waiting for the price to come down to a more favorable level to make a large purchase of stock. Because the price may not fall in the near future. Instead it could be rising for months, and you end up with a missed opportunity. I don’t want to turn into a gambler.
Let’s talk briefly about how we make an initial investment in the stock market. If you ask Mr. Lichello when is the best time to start investing in the stock market, he would say right now is the best time to invest. Then why would I wait for the price to fall to make an initial investment? Also, when you get a new lump sum of cash that you want to add to your existing AIM engine, you normally don’t wait for the price to fall. You calculate how many shares you need to buy and buy that amount of stock at whatever the market price might be at the time.
When I have to purchase a large chunk of stock to bring my cash reserve to a new level, I treat these rare events as a new investment opportunity, and make the necessary changes at the price the stock is trading at currently. Otherwise what happens is I start hoping that the market would do something for me (fall in this case). And the market rarely does you favors. And I turn into an emotional investor like 95% of them out there.
I hope this answers your question Toofuzzy.
Vitali
