Replies to post #1158 on A.I.M. Users Bulletin Board (AIMUSERS)

[extelecom]

Conrad, Turbo Vealie? I like the sound of that! I think this idea has merit. You take the added risk, but cover it with a stop loss / limit order! There are probably ways to do this with options, but I am not familiar enough to know.

et

[OldAIMGuy]

Hi Conrad, RE: the Turbo vealie idea.

It looks like you have the idea. Basically we don't sell any shares or value. We take the recommended trade value, divide it by two and add it to Portfolio Control. This has the effect of lifting the entire Hold Zone upwards a tiny bit.

There's a Tax Efficiency effect for taxable accounts. There's been no taxable event, so there's not tax collected.

Now, let's say we do this when the Cash Reserve hits 50% of total value. The price then continues to rise. Eventually the Cash Reserve as a percent of total is smaller even though in absolute value it hasn't changed. When it has been reduced to 45% of total value (a 10% drop from the ceiling cash level) then you start to sell as AIM requests. This will quickly bring the cash back to the 50% mark.

Repeat......

So, I find typically I'll have a couple of vealies in a row followed by a sale or two. Overall, the Cash Reserve stays in a narrow range very near the ceiling you've selected even as the price continues to rise.

The vealie makes a very small expansion in the Portfolio Control along with a rising value in the portfolio. To then do extra buying beyond this would first lower the Cash Reserve and second expand the risk further. If we did do some buying the reduced cash reserve would then allow AIM to immediately request a sell. So, I don't think this is a good idea.

A vealie is never performed when our Cash Reserve is at a very low levels relative to our ceiling we've chosen. In other words, it's done usually near the end of a bull market run, not the beginning. We've usually taken a large portion of our profits by the time we have come from being 100% invested to just 50%. So, we're really talking only about the tail end of the cycle usually.

Some have said that this is the time when we should be over-selling beyond AIM's requests because this is the end of the cycle. The problem is that we don't know. I first started using "vealies" sometime after 1995. I can't say I remember exactly when. It actually probably has more value with more conservative investments like mutual funds and "blue chip" stocks than it does with the high BETA stocks that fuel many an AIMers account.

I see that ET suggested using Stop-Loss orders along with vealies. I think this would be a bad idea. Not only does the vealie raise the next Sell price, but also the next buy price. The stop-loss will, if executed, also raise the next buy price. Now we've raised it twice when it should have only been raised once. If a Stop-Loss is used, then, when it executes, the 'vealie' should be undone. That sounds like a bunch of work to me!

Best regards, Tom