Replies to post #14693 on A.I.M. Users Bulletin Board (AIMUSERS)

[aim hier]

Hi Neill,

We have discussed this topic a number of times, you can search for discussions of 'deep divers'. I believe Don Carlson posted a formula for evaluating bankruptcy probability.

The chart looks interesting, but there is little data available on the company here in the U.S. Deep divers are the achilles heel of AIM, in my opinion. My own preferred method is to evaluate the worst case I'm prepared to accept, and make that my stop loss. If you've lost all that you care to, enter a stop loss just below where it's selling now, if it's bottomed, you'll be able to ride it out, otherwise the market will take you out. If you're willing to ride it a little longer, set your stop loss just below wherever you think it likely to bottom worst case.

[OldAIMGuy]

Hi Neil, Re: Falling Price.....

This is always a tough question. If you spent time reviewing the financial structure of the company prior to making your initial purchase, review the current financials by comparison. If there has been significant deterioration (not just cyclical blips) you should probably consider changing to another equity.

If the stock is just cyclical in nature and that's what attracted you to it, then let the cycles play out. When selling with AIM one had to know to whom one is selling. When buying, one has to think about from whom one is buying. If the Momentum players are just doing their thing, then you're just providing a service for them (and charging a handsome fee for the service).

The biggest problem I've had in recent years is when a nice cyclical growth stock that has had significant "sponsorship" by momentum players through several cycles loses the sponsorship. The company may not be in bad shape, but the usual bidders and players, pumpers and dumpers have gone away to find another toy to play with. This leaves a stock that becomes quite dormant, sometimes even in the face of good business performance. In such cases it takes a lot of time for the stock to recover to AIM's previous trade range. Some refer to this as "dead money."

I've mentioned here before that there's three things we can work toward as investors:
1) Price appreciation over time
2) Dividend capture over time
3) Volatility capture over time

These are not mutually exclusive. Any one of them might be enough to make an investor smile. When one can work two or three together then the fun begins.

Best regards, Tom

[Toofuzzy]

Hi Neil Re Stocks going down


>>>>Is there a point at which people have actually used as a cutoff to abandon holding of a falling stock?<<<<

When you set up your AIM account with from 20 to 50% cash that gives you an automatic cutoff. If the stock goes down enough you will run out of money to buy more stock with. Unfortuneatly that doesn't help with a stock that keeps going lower and becomes a "DEEP DIVER" (a stock that sits below where AIM will let you trade) I feel ETFs (exchange traded funds) are a good antidote to what I feel is the one problem of AIMing individual stocks.... the posibility of them going to zero.

I posed the question you had to a friend. His responce was that momentum investing can work and averaging down (like AIM) can work BUT you can't switch from one method to another!

With AIM you just have to be willing to go to the supermarket and buy when they have a sale. The ecconomy is very sick when people run to the stores to buy stuff because the prices keep going up and their currency is worth less every day.

Like I wrote above AIM will not let you invest more in a stock than you were willing to invest (or lose) at the outset. You just get to buy some of it at a lower price. Since when is getting a bargain a bad thing. If you allocated $10,000 to a stock ($7,000 stock, $3,000 cash) when you use up the full $10,000 you stop buying. If you sell out at some point you end up buying high and selling low. Just the reverse of what you want to do.

Hope that helps
Toofuzzy