Replies to post #30548 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

Hi MDSuth

It kind of depends. If you started out with standard AIM and 50% cash I would probably not add more money. If you started out with not as much cash as that or what is advised by the V-wave then you should have started out with more cash anyway.

If starting a NEW account now I would follow the advise of the V-wave and then let AIM run it and not buy more if I ran out of cash.

If you are AIMing an individual stock I would not add more cash. If AIMing a fund well I guess it can not go to zero.

I have fond in the past it is best not to change things once I start an account. also the market is quite off its low already.

Sorry if the above sounds a little wishy washy.

Toofuzzy

[AIMster]

If I run out of cash while AIM signals buy, is it prudent to add cash and keep 'buying low'? I know Lichello advises against doing this often, but it seems like the right thing to do.

I see where Toofuzzy's already given some advice and I concur with his recommendations generally. A couple of points: In designing AIM, Mr. Lichello was a romantic, firmly believing in the KISS principle (Keep It Simple, Stupid). The constant temptation is that we tend to resist simplicity, preferring instead to tinker and tweak. If Mr. Lichello gave us this good foundation to work with, surely we can do better than his original formula. And maybe we can, some of the time. Even he admits to not making a million in real life, and was amenable to adapt the AIM algorithm for the Bull market of the '90's with AIM-HI.

So, to your original question about adding more cash - a definite maybe. Depends, as TF mentioned if it's a single stock or fund. How much more "down" do you think it will go from here to justify new cash? Is this cash freely available to invest, or will Peter want to hurt you later as you've given the cash reserve that was his money to Paul? Nevermind Mary. If you think the stock has potential to be soon headed for an updraft, leaving on a jet plane, it might be worth doing. On the other hand if it's going to go "poof" from a puff, the magic dragon of the stock market, it might be best to hold off. I know, a folksy answer, but money in the bank is music to the ears!

Best,

AIMster

[ricardo_10x]

I know Lichello advises against doing this often ..

I didn't remember this advice. Can you point me to a chapter in the book or some other source? I scanned my book (1977 paperback version) last night but couldn't find the reference. I'm interested in what and how he said it.

You're right it does seem to be the right thing if you have investable cash and still believe in the investment. I did find a reference to that's where's the bargains where but he was talking about a bottom that didn't quite cause a cash shortage and a caution about letting AIM make the buy call. Myself, I did add cash several years ago and also last winter.

Regards

r

[glennpj]

If I run out of cash while AIM signals buy, is it prudent to add cash and keep 'buying low'? I know Lichello advises against doing this often, but it seems like the right thing to do.

If, and only if, you are confident that the stock will recover, and you have the cash available, then this could be prudent thing to do. Simply dumping cash into your portfolio is not a problem, particularly if you are out of cash in that portfolio. AIM does not make a distinction as to when the cash was put there, it just makes buy/sell recommendations based on the portfolio control.

He also advises to put half new cash in cash and half in stock, adding the whole value of the stock purchase to PC.

If you are out of cash, then deposit new cash and follow the AIM recommendations as if the cash had always been there. If you have sufficient cash and want to invest a new lump sum and have some of it invested in a stock that you already own then simply create a new AIM portfolio with the new money. Your brokerage account will deal with all the multiple tax lots of an equity but there is no reason why one can not have multiple AIM portfolios with the same ticker symbol. That way, you can invest new money, adding the whole value of that new stock purchase to PC, but not affect an already running portfolio.

Hope that helps.

[tom101]

IMHO you can add to the cash balance when you are out of cash and the share price rises above the 200 day moving average.

You haven't added at the bottom, but, you will still buy cheap shares on the way up. If your concerned about getting whipsawed, limit the contribution and wait until the 200 day moving average turns up.

This may or may not be useful to you, but, it gives me some comfort.

PS. I did not make a million (yet).

[lostcowboy]

If I run out of cash while AIM signals buy, is it prudent to add cash and keep 'buying low'? I know Lichello advises against doing this often, but it seems like the right thing to do.

Hi mike, AIM does not keep track of how much cash you have. That is why it is asking for more cash than you have on hand. Can you add the total amount that AIM is asking for with out upsetting AIM? YES you can.
Example 1: AIM wants you to buy $3,000 worth of shares, but you only have $2000, so you get a loan for $1,000. You would buy the $3,000, and add $1,500 to Portfolio Control. No Problem!

Example 2: AIM wants you to buy $3,000 worth of shares, but you only have $2000, But you think this is such a bargain that you want to add extra money to the stock, so you get a loan for $2,000. You would buy the $3,000, and add $1,500 to Portfolio Control. No Problem! But you want to add a additional $1000 of unasked for money? What to do? Mr Lichello was a ultra-conservative man, that is why he recommends only putting half of the unasked for money into AIM now. That way if the stock should drop again AIM has some cash to work with. Any unasked for money that is put into stock must be added to Portfolio Control at 100%. In he's early editions he wanted you to add 110% to Portfolio Control, But if I remember right in the Twinvest edition he dropped it to 100%.

The same goes for selling stock, if aim asks you to sell stock to add to cash then you don't change Portfolio Control. If you are removing cash or stock, say to buy a boat, then you want to reduce Portfolio Control by 110% of the cash in the old editions and 100% of the cash in the new editions.

[Conrad]

Like the other respondents that already have said their piece I advise that adding cash when prices drop is the “right thing” to do provided you have determined that the equity "is worth owning". .IF that is so then it is the right thing to buy more of it. . .any time, but particularly when the price will drop more(then you wait a while) . . .this is the fundamental methodology used by Warren Buffet and others like him. It is Rule #1a for investing. This simple wisdom goes as far that it means, without exception, that this type of equity is worth buying when prices are increasing. . then you ARE still buying when price is low and THAT is also a basic rule for investing.

For a equity that is not worth buying you should not own any of it. That is Rule #1b.

Of course, my advice implicitly means that when you invest you should preferably know at least something about the market dynamics, and human behavior (copy the rich guy J). . .most of all you should have a reasonable knowledge about yourself: will you have sleepless nights 1) if prices drop because you worry about the potential loss you might suffer OR 2) are you being kept awake from excitement about the beautiful opportunities for making a profit that are developing?

If 1) then invest very cautiously and conservatively and leave the market when prices have dropped 10% or more. If 2) then invest aggressively and never leave the market. . .unless you discover that the equity you bought under Rule # 1a is no longer worth having. Then you apply Rule #1b en step out.

Within these guidelines that I advice one should become skilled in interpreting the market heartbeats. . .anything that happens. Which Investment Management Machine you use is far less important than being the CEO of you investment activities. You are the Manager. AIM or Vortex-AIm or Wallstreet are simply tools one can learn to use.

Anyone that that knows nothing about investing will not be able to MAKE money with Wallstreet, or any other management machine. . . except by pure luck once in a blue moon, but that is also possible in a Cassino.

My advise is to keep buying as prices drop(use a braking system like MACRO if they drop fast) IF the equity remains worth owning. Borrow money if you run out of cash and use the TurboVest Method, or the PremiVest Method or the rich Uncle Method, IF the equity remains worth owning. . .If it is worth owning then the more equity you have the more profit you will MAKE. . . Its not a question of Lady Luck but a question of skill and knowledge.