Replies to post #475 on A.I.M. Users Bulletin Board (AIMUSERS)

[Qarel]

I think Lichello rules out selling a winner by not talking about it :-)

But he also gives as a rule of thumb "It's my job to make my portfolio fluctuate." So that could be a reason to sell a winner: when it no longer wins, but has gotten into the doldrums. Then the stock no longer fluctuates, and you are free to look for another.

And of course AIM wants us to sell winners automatically. It sells winners all the time. If you don't do vealies, a winner generates a heap of cash that doesn't fluctuate much. :-) Why not convert part of it into other attractive positions.

But don't just cash out of your winners. Count your blessings! They come in at every sell point!

Regards,

Karel

[Rien]

Hi LH, as you quoted correctly, AIM is about cash/equity allocation. Not about stock selection. That is our job. I see that Karel just urged to let winners run. And that's very true. But when they have run their course, there is no reason to not switch horses.

I do have a problem with the statement: "It is our job to generate volatility". Of course you can generate volatility. But that would IMHO not be prudent portfolio management. Let the market generate the volatility. Concentrate on picking winners. If a winner has run it's course, then drop it. Bye bye and thanks for the cash!.

There is the point that the market likes to move as a whole. That makes switching horses a bit difficult.

My personal preference would be to own a portfolio of, say, 5 stocks (tech stocks) which I believe would be winners. You also keep a watch list of another 5-10 stocks that you believe are potential winners. Then as the portfolio takes off, and AIM wants to sell something, you sell the slow movers. When AIM tells you to buy, you buy the strongest of the watch-list stocks.
If this is implemented correctly, you should over time have lots of sells, and only a few buys. Which is exactly what I like. I.e. cash is generated. What I would do with the cash?, well move it down the investment pyramid and put it in income producing (AIMed) accounts.

Just some thoughts,
Rien

[The Grabber]

Keith:

It doesn't matter as long as it's equal value.

It doesn't matter if it's a winner or loser. In fact I think a swap for US $ is also ok (albeit a temporary move).

He doesn't rule out swapping out winners for better prospects. In fact, This was an epiphany for me in the latest book.

In some of my earliest simulations (pre SI days), I tried a 'reset' strategy which effectively accomplished the same thing. I never thought of it in these terms, but I think the effect was the same.

So, bottom line is that I agree that one could (should) run for the bank if one desires.

Regards, Steve

[OldAIMGuy]

Hi Keith,
"Now he suggests closing out a loser in exchange of equal value for a better prospect, but he doesn't rule out closing out a winner for the same reason. Does he?"

Let's take a very long term look here. If we own a wonderful, volatile growth stock for ten years and it not only does good on its own but with AIM's assistance, we've been very fortunate. Now, after all this time, the company is very large, widely followed and maybe even over-analysed. It's business growth is slowing because of market saturation. It's still growing, but just not as rapidly. It's "Mature."

I believe this is a time to consider closing out an older and profitable position. If it no longer fits the usual AIM personality profile, it is probably time to let it go before we bore ourselves to death.

The dollar value can be swapped for a new pony to ride.

Best regards, Tom
PS: Remember that JZ Galt used to talk about what "quadrant" a company was in. Certainly mature companies can be volatile as "cyclicals" and still be AIMed, but sometimes they are just boring!