Replies to post #3659 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi ET, Such a dividend does justify making changes inside your AIM account. Your #3 would need no Portfolio Control action.

If we had a $15 stock that gave out a tax free dividend of another stock issue and we decided to AIM them separately, we should remove the value of the dividend shares from the initial AIM account. Let's assume the new issue comes out at $5 and the old issue is reduced in share value to $10 post-dividend. We'd want to reduce the PC value by 1/3 to get the trade range back in sync with reality.

The new issue could be set up using the $5/share value as a starting point or some possible average cost value.

Best regards, Tom

[Conrad]

ET, finally a question I can understand! I will attempt to propose an idea.

Now, I am running a severe risk to expose my ignorance. In the past I got some interesting advice. I was touring the beautiful Port Edwards region in Wisconsin, in a blaze of Fall colours(1976 or so), and I heard on the radio:

"It is better to keep silent and let people think you are ignorant than it is to open your mouth to remove all doubt".

Actually, I was touring the region in a car! The blaze of colors had something to do with the trees.

I think I'll gamble today!

If a dividend is paid, the stock price drops(Other things being equal-which they never are). Right? OK, I am told that the this depression almost always recovers and that many people make it a habit to sell their stock just before the dividend issue and then buy it back right away after the dividend issue. The argument being that the stock price gain is usually larger than the lousy dividend income.

This would justify to keep the PC as is and simply sell the stock anyway(or a part of it) even if there is no sell signal. After you get back in then you either start a New Portfolio at the same value (but with more shares), or you continue with a partial buy, and that updates the PC as usual(also having more shares).

I think it is a brilliant tactic(thank you) if the functionality of the stock price dip/recovery holds.

I hate those if's.

By the way, does anyone own stock in the Port Edwards Paper Mill? I used to work as a Field Engineer on the paper mill's waste water treatment plant there. Beautiful place!


Conrad

[The Grabber]

ET:

On PC adjustments due to spinoffs:

When 3COM spun off PALM some time ago, I was AIM-ing 3COM. Of course the share price of 3COM immediately dropped with respect to the value of PALM shares I received.

I don't recall the exact numbers, but I do remember taking a percentage off of 3COM's PC and using it for PALM. For example, if the reduction in LU's price was 40% and your PC was 10000, then LU's new PC is 6000 and Agere's is 4000. Note that the total of both equals my starting point. Purely mathematical!

This worked well for me and I AIM-ed both for some time after that.

Regards, Steve