Replies to post #38951 on A.I.M. Users Bulletin Board (AIMUSERS)

[SFSecurity]

Hi Clive, I'm not sure I agree with one point, but I have been known to be wrong from time to time.

You say:

(50% cash covers a 50% decline in share prices before being exhausted)

From my perspective 50% cash covers more than a 50% decline even if you do a BTB AIM, but not a whole lot more. With a delayed buy it is significantly more if based on the number of shares and not dollars accumulated as suggested buys.

Current Price $100, 100 Shares, $10,000 Stock Value, $10,000 Cash.

Price drops to $50, using my spreadsheet and no delayed trades, you wind up with 255 shares, $10,900 Stock value, and $440 Cash, enough for 8 more shares at $50 or less.

If, instead, you delayed buys until you hit 50% down the price would be $50, 255 shares, $10,900 Stock Value, and $2,250 in cash still left, enough for 45 more shares at $50 or less.

You would have less cash if you accumulated the suggested cash amounts to make your buy at $50, only $278, enough for 5 more shares at $50 or less.

For what it's worth I used $5 increments as I stepped down to $50 and I got the first buy signal at $80 and the buys were not based on an uptick in stock price.

Which approach is best? I think it depends on your guess as to how much further down you expect it to go. Will it be the ~57% of 2007/9 or the ~83% of 1929/32? Your guess is every bit as bad as mine, and based on that I'd probably use the number of stocks rather than accumulated dollars as it would let me still buy more if it was to go down more. However I would not get quite as good a result as going all in with the bigger buy using the accumulated dollar amount.

Best to you and yours,

Allen

PS, love the math, but I have no clue why it works or why one should use it.