Replies to post #3703 on A.I.M. Users Bulletin Board (AIMUSERS)

[Tim Reese]

re testing and reduction

Hi Toofuzzy - you wrote

In talking to a friend who has been investing a lot longer than I when asked by me "so what do I do, the systems are proposing two different things, which one works" He Said "Both! but once you pick a system you need to stick with it "

I see your point. By definition, the system requires you to double-down (isn't that what it's called?) to take advantage of the AIM leverage. But I also understood that AIM puts a finite amount of money at risk, and in most cases your cash reserve will not run out. To continue to put money into a constant down trend seems contrary to AIM's aim to reduce risk ... adding more cash increases risk, with the expected potential for increased return.

I'm not a long time investor, and most of my time has been devoted to managing my 403b(7) money, so I'm really new to investing in individual stocks. A couple of principles I've heard in many places are 1) always buy quality companies, and 2) at some point, you're going to lose money. To me Jeff's example has already violated the quality rule, and it's time to accept losses. Geez, Jeff's example seems to have more in common with your doubling-down gambling example than real life; at least in the gambling example the casino won't go out of business while you continue to place your bets.

Wow, a lot of traffic on this board. Wish it were more obviously threaded.

Thanks for responding so quickly to my post - cheers Tim

[Bernie Goldberg]

Hi,
OT
Which casino are you playing at where they only allow five doubles. Wherever I've gambled there is a table limit.
But let's look at you math which IMO is a little fuzzy.
Let us say you are playing a purely mathematical game like Roulette.
first bet $1
Second bet $2
Third bet $4
Fourth Bet $8
Fifth Bet $16
In Las Vegas there are 38 spaces on the wheel. Eighteen red, eighteen black and two zeroes which are green. The same numbers will be found for high/low bets, and odd/even bets.
All of these bets (red/black, odd/even, high/low) pay even money. The kicker is in the zeros. When you make one of the even money bets, there are 18 possible winning numbers and 20 possible losing numbers. This gives the house an edge of 20 to 18 or 11.11111%. They let you double up as many times as you like as long as you don't go over the house limit.
Just for your information: After the above series of four losing bets you will be risking $16 on the fifth bet in order to come out ONE dollar ahead when the odds are 10 to 9 against you.
Perhaps it is fortunate that you think they will only allow you 5 doubles, because after the fifth it goes 32..64..128 etc, all to come out that same ONE DOLLAR ahead.