Replies to post #38055 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

The point of the cash burn chart is to give you an idea of what you're opening yourself up to with the settings you might use with AIM. If you say to yourself, "I don't need no stinkin' cash! I'm gonna just use 20% as my starting cash position." Well, that's fine. However, how much of a downturn in the market can you participate with AIM if you use 20% SAFE total? You'll run out of cash with a 34% decline in your starting share price.

That chart/table is just a guide. For instance for AIM-HI if the price declines -30% after having just started the AIM and you trade at each AIM trade point you'll not have any cash left to buy more stock at that AIM indicated buy price that's -30% below the initial start date price.

If the price however rose to near its sell trade, but then dropped, you'll be covered for a -45% decline before being unable to buy more stock.

i.e. the 34% chart/table figure is more a average figure/guide.

AIM HI in effect stops you from injecting too much into a potentially critical/fatal decline. Perhaps after a 45% decline saying no-more - unless you choose to override that and borrow/provide funds (cash) from elsewhere (another AIM perhaps) for that AIM to service further purchases. Otherwise I'll stop here and we'll wait and watch the price perhaps drop lower still and see if the price does recover back above the current level. A kind of a stop-loss mechanism.

[SFSecurity]

Hi OldAIMGuy,

Thanks for the very clear explanation. Helps a whole bunch.

In theory one could use a well established BETA on the investment in question applied to the diversified portfolio v-Wave. An example would be AAPL with a 1.2 BETA. If the v-Wave diversified cash reserve was showing 41% cash reserve, then AAPL should get along with 49% cash roughly at this time. Another example would be BZH with a 2.3 BETA. It should be started with a 94% cash reserve!

What is the math that generates the correlation between BETA and cash reserve requirements? I understand the basic concept but it seems a bit steep to have 94% cash for BZH. Then again from a peak of ~$35 in 2007 to a bottom of ~$0.50 in 2009 and no significant recovery until a reverse stock split of 1:5 it makes sense empirically. I just don't get the math at this point.

BTW, I love the "Dead Cat" bounce image. Can't remember where I first heard/saw it but it was loooong ago.

Warmest Regards,

Allen