A.I.M. Users Bulletin Board

[Rien]

Hi Irwin, I disagree.

If you have $10,000 invested then you have $10,000 at risk.
If you have $10,000 invested in more than one stock, then the risk is lower than if you have it invested in one stock.
Lets look at the following:
A: Normal AIM, $5000 invested $5000 in cash.
B: LD-AIM, $1.500 invested $8500 in cash.
C: LD-AIM, $1.500 invested, $5000 in cash and $3500 invested in another account, say $500 invested and $3000 cash.

When comparing money at risk, A's risk > C's risk > B's risk.

B has the least money "at risk".

We have had "risk" discussions before, and it is my opinion than when using AIM ALL of the money is "at risk". After all, you are willing to buy more if the price falls.
In this case, the money at risk is: A's risk = C's risk > B's risk. (Note: in case B, $3,500 is NOT at risk, it will NOT be used to buy shares at lower levels)

There is yet another issue, if you look at "the risk" rather than "money at risk", then I do not dispute that one can lower the risk by diversification. However if you start more LD-AIM accounts than AIM-BTB accounts with the same initial amount of money, then the picture becomes very clouded indeed. Simply stating that the "risk" is lower because you are more diversified, does not work. In order to assess this properly, one needs to define just how the money is to be allocated in order to get a proper picture of the risks involved.

(See?, I think we agree more than we disagree , it is often pretty hard to describe things properly)

Best,
Rien.