Hi LC and Q, Yes, there's a point where AIM will get "stuck" if you make essentially every possible buy between $10 and when the Cash Reserve runs dry even when you make every possible Sell trade as the price recovers to $10 again.
I think this is exactly why Bernie G. is so insistent that a reasonable amount of time pass between execution of one purchase order and placement of the followup buy order.
Basically what happens is that AIM eventually runs out of cash much sooner because the total cash accumulated in each cycle (when done in small incremental moves between $10, $4 and $10) becomes a smaller percentage of the total value of the portfolio.
As we've seen in Lou Dina's "Cash Burn" chart: http://www.aim-users.com/cashburn.htm there's a specific point where cash will run out as a percent of the highest price before a decline. If we start with 50% cash at the beginning of the first cycle we can expect to be able to buy to about a 50% discount (short of Mr. L's $4 lowest price). On the second cycle we find that we only accumulate cash amounting to about 28% of the total value when the price returns to $10/share. Hmmmmmm. Well, as Lou was kind enough to calculate, we will run out of cash this cycle when the price hits about $6-3/8. Next cycle it is worse.
The reason is that the account has grown in value, but the cash reserve hasn't grown back to 50% at each peak of $10.
Since most stock price histories don't exactly follow Mr. Lichello's extreme example, we rarely run into this problem. Further most investors attention span for a single investment last only a few minutes, days or weeks; not cycles! We AIMers tend to have more patience than many other types of investors. If we're picking a stock for its long term potential growth and it is achieved, this phenomenon won't ever show itself.
Of greater concern is the use of a stock or fund with a true cyclical price pattern. Something like a long term bond fund most likely won't ever break out of a specific trade range. However, it is also unlikely to have as large an amplitude in price swings.
Thanks for bringing this up. Miraculously this problem dissolves completely if we use Margin! :-)
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