Hi Jamil, I'm not talking about changing the setting - guessing which way the market will go day to day or even month to month - along the way, just a different way to accumulate either buys or sells to reduce trading costs as well as to allow another buy even though history says you are already near the low. Look at the chart for EGY over the last couple of weeks and it seems to have bottomed at $3.03 on the 19th of March. Look at the sector ETFs IYE and it seems to have hit bottom on the 13th, as did XLE.
I know that this doesn't mean that EGY can't go lower or that the sector can't go lower, but it seems reasonable to me that it won't drop another 50% to $1.50. An additional 25% would be ~$2.25. Not totally impossible but given the ~70% drop at this point my guess, mind you strictly a guess, is that it is not all that likely.
As to the amount I have as cash for EGY, I have allocated 20% in the cash reserve for this position, plus I have an additional 5% in a general cash fund. The general cash fund is across all AIM positions and can be used where the 20% set with AIM-HI turns out to have been wrong, sort of a reserve or safety fund in case I should have used a different cash fund than I did.
As to EGY, I'm guessing that the loss in price of about 70% at this point from ~$10 is primarily caused by the massive downturn in the energy sector due to market forces outside the stock market normal churn/business cycle changes. You may well be right about it falling to $2.50, perhaps even lower, but the "normal" business cycle would have it recover at some point during the roughly 6-9 year trough to peak to trough cycle the stock market has had over the last roughly 30 years. Plus, say it falls to $2 and then recovers to the ~10 dollars, or say ~$8, that would be roughly $5 to $7 above where I bought in at. If I wind up with another buy or two it will only make my cost per share lower. Since TDAmeritrade has the option for taxes of selling the highest price first, this reduces the capital gains a bit on the upside.
As Toofuzzy has said many times, select the most out of favor sector to invest in is a good place to start a position. Energy is the one at the moment with a one year performance of -11.3% according to Bloomberg.
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