Mark,
The midnight oil is already burning, and I have not yet run out of oil (I did not burn it early in the evening).
Joking aside, I do not quite accept yet that you are right. In most cases when stock prices fall much more than expected we al run out of cash, except Aimers that use the percentage decay: They will never run out of cash.
Now, all other things being equal (which is never the case), if we start 2 AIMs and you make bigger buys that I do early in the game and I make bigger buys that you do later in the game then (eliminating other possibilities) there are two extremes that we consider:
1 The stock rebounds "early" and you have invested more cash than I have. In this case your have invested more effectively than I have, but only little more effectively as the share price has dropped only a "little".
2 The stock rebounds "late" and both of us have invested all the cash we had (the same amount). You ran out of cash probably earlier than I did because I retarded the buys at the beginning. It is possible that I ran out of cash earlier than you did, but this depends on the specific rate at which I retarded the spending at the beginning and accelerated the buying as the price dropped. As this situation can go both ways I assume for the sake of averages that with this strategy we both run out of cash at the same stock price. So the last batch I bought is bigger than your last batch. In this option my cash is spend more effectively than yours.
Now consider that some of the times this strategy will result in a case that I will sell my last batch much later than you. This means that I will buy my biggest package at a lower price and this results in a disproportionate larger number of cheap shares. This non-linear function of the number of shares acquired at low prices will provide disproportionate larger gains as the stock rises. This non-linear effect of buying many shares at low prices is the power if the AIM in the first place. If you manage to skew your buys to the bottom then you automatically reap the benefits of this AIM-feature.
This non-linear feature of the increasing number of shares that are acquired at low prices overpowers the simple effect of repetitive buy/sell/buy/sell...etc.
Therefore, any effective method of delaying the buying on the downside will produce significant gains relative to depleting the cash early.
So, my AIM to delay the buying on the downside and conserving cash to spend it effectively at the bottom is in itself, by definition, not open to debate...it has been a central topic for AIMers to achieve exactly that goal.
I state categorically that instead of a decay-method of cash disbeursement that an exponential-method is the most effective. Correct use of such a method is, as a matter of course, necessary.
Regards,
Conrad.
