Replies to post #43586 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi Toof, Re: Deep Divers..................

A while ago I mentioned my "Black Swan Rule" for deep divers. Maybe it would help you kick start some activity.

The Black Swan Rule works from when you run out of cash in a holding. That last buy might be far below where other purchases might have been before it. Take the last buy price and divide it by 0.80. That will give you the "next sell" price under Black Swan conditions. AIM's next sell might be quite a bit higher, so use the lower of the two as your target price.

Should you be so lucky as to trigger the sale, then that limited amount of cash would not be used again unless the price/share were to drop back to the previous buy price.

Rinse, Repeat.

This way you recycle the very limited amount of cash generated maybe several times before the stock share price finally starts back toward a more normal range. Otherwise you can be stuck with no profitable turns for a very long time.

[SFSecurity]

Hi Toofuzzy, I, too, have DHT and hate the dump it dived into; however, I bought sufficient shares, bigger than the AIM amount, when it crashed to lower my cost per share to $5.24.

Since then I've been selling enough CALLs at $5 that have lowered the effective price to $4.91. The current CALL expires April 18th and it doesn't look like it will be called away so I'll sell another one.

Sitting on my hands on this one has helped me big time.

[Adam]

I've had my share of deep divers so I know the problem and now new money goes mostly into ETFs (and not weird ETFs either). AIM after all uses similar principle to dollar cost averaging which applies to indeces not to individual stocks. I think Lichello misleads with his example of the stock that takes a dive and recovers, and of course AIM does well with that, but most stocks that take a deep dive never recover or if they do, do so in a very long time course.

If your deep diver is in a taxable account you can sell a part or all to offset capital gains or income as I'm sure you know. Other than that you have to decide if the stock can stabilize and recover or if it will continue to decline. If the latter, just bite the bullet, accept the loss and learn from mistake.

Adam