A.I.M. Users Bulletin Board

[aptus]

Hello Conrad,

The Vealie is a way of staying invested a little longer (which subsequently increases risk a little, but with the possibility of a greater payoff).

In general if an AIM program is throwing off cash, that means that the equities in the AIM program are rising in value (i.e. you're receiving more sell signals than buys). At some point you might feel that you've got enough cash to cover your future buys so you want to stop collecting cash. In essence you want to leave your money invested in the stocks you currently own.

However as the stocks rise, you will receive additional sell signals. AIM is recommending that you sell stock in order to raise cash for the next buying spell. However you feel that you already have enough cash to cover the next buying spell -- and you might also feel that the stock will continue to rise.

So you might be tempted to ignore AIM's sell signal. However as the stock price rises, the sell recommendations will continue to get bigger and bigger. Furthermore, the next buy price will become further and further away (so your stock will have to retrace a great deal before a buy is triggered).

Enter the Vealie... you simply increase your Portfolio Control by (traditionally) 1/2 the new sell recommendation. This has the effect of moving the next buy price towards your increasing equity value as well as lowering (or eliminating) the subsequent sell recommendations. So you stay invested with the number of shares you currently own AND you've moved your next buy price up AND you've lowered your next sell recommendation.

Of course as Newton's 3rd law states, "For every action, there is an equal and opposite reaction." How does this apply to the Vealie?

Well first of all, by ignoring AIM's sell recommendation (regardless of whether you choose to increment PC or not) you're opening yourself to a little more risk (e.g. if the stock suddenly lost 90% of its value you'd be holding more of it because you didn't sell as AIM suggested).

Secondly, you're introducing some subjectivity to the mix (e.g. you have to decide how much cash is enough) and you're performing some prediction whether you know it or not (e.g. predicting you have enough cash to cover price declines and/or predicting the current stock's upward trend will continue).

I hope that clarifies the Vealie concept somewhat. Whether it's useful or not solely depends on YOU and your specific situation.

BTW... Automatic Investor has an automatic Vealie function and AI 2.0 adds the ability to pull a Vealie with one mouse click (thanks to Don Carlson for that suggestion) -- so you don't have to directly mess around with the Portfolio Control.

Regards,
Mark.

http://www.automaticinvestor.com