Replies to post #483 on A.I.M. Users Bulletin Board (AIMUSERS)

[Rien]

Hi ET, I am personally not a great fan of keeping the cash in an AIM account. This has to do with my definition of risk. I think that as long the cash remains in an AIM account it is principally at risk. If the stock(s) go down, it will be converted into equity. Therefore the risk applies to the cash as well as the equity. You could say that the cash is a proxy for future equity.

Thus in stead of pulling Vealies (to which I do not object in bull markets like in 1990-2000) I would rather take the cash and use it lower in the investment pyramid. I.e. bonds, REITs and other income producing accounts.

Thus as soon as the cash level exceeds the IW (or whatever other number you like), I would take it out.

Best,
Rien

(PS If you have excess cash in an AIMed income generating account, then the cash would remain were it is. But it would stay as cash until a good opportunity (crash) comes along to increase a position within the account.)

[Qarel]

Hello XT, when I had posted my message, I realized that it doesn't just apply to AIM without vealies, it also applies to AIM with vealies. Vealies don't prohibit all sells, they just keep Cash Value below a ratio compared to the Stock Value. My point remains: don't sell a winner unless it changes its characteristics and no more fluctuations occur.

But it is possible to backtest this if you would like to: Just AIM the downswings of mr. Lichello's example (or another cycle, or historical stock prices) and stay in cash when the position generates a sell over the first buy point. Buy back when the cycle on the way down passes the initial buy point again and start a new AIM position.

The reason I propose this, and not to string only downswings together, is that part of the swings are caused by general market conditions. So this way you stay on the safe, conservative side.

Regards,

Karel