An Ever-Liquid Account (Concept)

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An Ever-Liquid Account

In its operation, an ever-liquid account is normally kept fully un-invested; i.e., in cash or equivalent only. “Equivalent” means any kind of really liquid short-term security or commercial paper.

Book values and market values are always kept identical.

Income is real income; i.e., interest, dividends, capital gains realized and realizable, less capital losses taken or unrealized in the account, which is always marked to market.

Cash and Equivalent (Beginning of period)

add Income:  
capital gains realized
capital gains realizable

less losses:
capital losses taken
capital losses unrealized in the account

Cash and Equivalent (End of period)

How to keep the account truly ever-liquid?

Income and appreciation are obtained in the ever-liquid account by entering the stock market as a buyer when a situation and trend seem clearly enough established so that a paper profit is present immediately after making the purchase.

In order to keep the account truly ever-liquid, one must use a mental or an actual stop on all commitments amounting to some predetermined percentage of the amount invested (e.g. 3% stop loss or 10% stop loss).

One does not make a purchase unless one feels rather sure that the trend is sufficiently well established to minimize the possibility of being stopped out.  Yet it will happen occasionally anyway.

The decision of what and when to buy is made on a personal basis using various yardsticks best understood by individual investors.

Concentrated purchases of single issues

This investment philosophy leads into concentrated purchases of single issues rather than diversification, because one of the primary elements in the situation is that one must know and be convinced of the rightness of what one is doing.  

Diversification as to issue and type of investment is only hedging – a method of averaging errors or covering up lack of judgement.

Profiting from trends and pyramiding

This ever-liquid method also rarely calls for attempts to buy at the bottom, as bottoms and tops are actually impossible to judge ordinarily, while trends after they are established and under way can be profitably recognized. 

It is a method that leans towards pyramiding; i.e., towards following up gains and retreating before losses.  Such an account, properly handled, bends but never breaks. 

“Averaging down” is, of course, completely against this theory.

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