Replies to post #38942 on A.I.M. Users Bulletin Board (AIMUSERS)

[SFSecurity]

Hi Clive, I don't get it. Since the TEST position is valued at $10,000 for 100 shares then a percentage of stock value and the percentage of portfolio control should be the same for the initial trade, I would think. Additionally the label says it is Portfolio Control in the first box:



Also looking at the figures again, it does not make a lot of sense. There is only a 20% Hold Zone for the online calculator when I use the 1 share (1%) minimum trade like in Newport, but if I make it 5% the calcs are about the same as Newport, Sell = $117.65, Buy = $86.96.

I confess to being quite puzzled why division is used instead of multiplication. So I looked up the "proper" way to calculate this and came up with the same approach I've always used. Plus, using the calculator at http://www.calculatorcat.com/free_calculators/percent_gain.phtml it says that it is 13.04% down from 100 to 86.956 and from 100 to 117.647 it is 17.65% up.

However, when you turn the figures on their head and calculate what percentage you would need to increase $86.956 to 100 it is 115% - 15% of 86.956 is 13.043 and add them together to get 99.999. The same happens going the other direction. To decrease 117.647 to 100 you use 85% or subtract 15% - 15% of 117.647 is 17.647 and subtract from 117.647 you get 100.

Sure not the way I was taught, nor the way the calculators on the net work. Even ads in the newspaper touting great sales do it the way I've always done it, I just checked.

It probably doesn't really matter. I wonder if Lichello did it the same way as Newport. I'll have to look it up, but not now. I'm off to the land of nod.

Best,

Allen

[OldAIMGuy]

Hi Clive, Re: Calculations............

Newport uses the larger value of the minimum order value or the minimum shares for the trade to calculate the next buy and sell prices. In your example Newport is looking at the $500 minimum and ignoring the 1 share minimum.

Note that in the AIM Calculator it predicts a Next Buy Price based on just $90 order value where Newport is calculating the next buy price based upon $500.

Same on the Sell side. The AIM Calculator is predicting the Next Sell Price based on a minimum trade size of just $112 of value where Newport takes into account the larger minimum order size of $500.

So the real clue to the difference lies in the minimum order value. Newport calculates everything 'by the book' but looks a which minimum will generate the larger dollar value order. It works on an "at least" basis, too. So, if 5 shares will generate "at least" a $500 order then it will suggest a price that will give us a round share trade on the sell side. On the buy side, 5 shares would undershoot the $500 minimum trade. 6 shares will satisfy the $500 minimum, however.

So, Newport would suggest selling just 5 shares, but would suggest buying 6 shares to satisfy the $500 minimum order size.

Hope this helps.

In the AIM Calculator's case, it would sell $112 worth of stock vs buying just $90 worth of stock. The orders are equal in shares, but not in value.

The reason Newport was designed the way it was had to do with history. Years ago one was penalized, to a degree, for trading "odd lots" (not 100x share lots). Also commissions used to be based upon a minimum plus an amount per share traded. Back in the '80s one wouldn't want to put in an order for 5 or 6 shares of stock because that order would get shuffled to the bottom of the pile. Further with commissions at $100 per trade minimum, one wouldn't consider trading just $90 or $112 worth of stock - not even $500 worth of stock would make any sense.

Neither the AIM Calculator or Newport are wrong.

[OldAIMGuy]

Here's what the AIM Calculator looks like with the shares adjusted to approximate the value of $500 as a minimum.....





The first image uses 5 shares to show about what would be expected for the selling and the second image uses 6 shares to show about what would be expected with buying $500 worth.

Note the first image matches Newport's Sell suggestion while the second matches Newport's Buy suggestion.