Replies to post #29194 on A.I.M. Users Bulletin Board (AIMUSERS)

[AIMster]

I recently opened an AIM portfolio using the 50% cash reserve method. My fund has been going up. Do I ignore a market order to sell stock as long as I already have a 50% cash reserve?
If the answer is yes, won't I be missing out on a lot of cash eventually?
I probably am missing something.

Hello! Glad to have you here. Good that you've got the system working for you and given where we are right now, Lichello's original formula is not an unreasonable choice. Of course, there are those who favor using a current market mettric like the V-wave to set up the initial AIM cash reserve level, rather than a specific default level, per se. Keep in mind that going "by-the-book" is an acceptable practice.

Given how toward oversold the market's been, some movement toward "up" is not surprising. Regulation of the cash reserve (in both directions) is one of the key issues in AIM type strategies. Some other users once upon a time came up with the concept of a "Vealie" named for our moderator. A detailed explanation can be found here: http://www.gsnindia.com/Help/Vealie.htm So the choice in an upmove is to follow AIM's guidelines and sell as directed, or pull the Vealie and defer that particular sale. Other sales will likely follow in the future. Of course, with the present market uncertainty, having at least 50% cash reserve to start will give you a fairly good cushion to work with.

Hope this additional info helps - if you have any more questions, please post them!

Best,

AIMster

[OldAIMGuy]

Hi I, Re: Cash Reserve Level..................

I see AIMster has already given you a good answer. As he stated, one can run an AIM account just like the book, maybe use the "vealie" idea and put a cash reserve upper limit on the account or use a floating upper limit such as the v-Wave.

Each will have its own effect over time. Much depends upon the underlying security that is being monitored by the AIM method. If it's conservative and highly diversified, then a higher cash reserve level may not be desirable. If it has less diversification or is in a very cyclical business sector, then a higher reserve might be desirable.

The goal is to keep a pragmatic amount of cash available at all times. Certainly keeping 50% in cash is going to be conservative for most mutual fund or ETF type investments. However, if used in conjuction with "by the book" over a long time of bullish market behavior, it could let the cash build to an impractical level.

If you don't plan on using an upper limit to the cash reserve, then you can start with a slightly lower level of cash. If you're going to use an upper limit, then starting more conservatively makes some sense.

You'll get a feel for this after running AIM accounts for a while. It takes a few market swings to get a feel for how the mechanism works and what sort of 'shock absorbers' are appropriate for the investments you choose.

Best regards, Tom