1998issue C041-4

Cash recovery grids for residual share construction

An editorial reading of the archive treats an open line as a two-clock construction problem. A short-horizon dollar-cost-averaging, scale-in-position, and scale-out-position grid runs only until sale proceeds have returned the original cash outlay. The leftover residual-target-lot is then held as a position that no longer consumes working capital.

The procedure starts only after the security and the opening time are already chosen, so it governs later size rather than replacing selection or entry analysis.
The cash-flow goal is cash-flow-zero-cost: sales return the original outlay while a chosen residual-target-lot remains, and tax basis on leftover shares is described as remaining at the purchase price.
Dollar-cost-averaging and scale-in-position add on a decline grid when the first sale price is delayed; scale-out-position reduces after advances and stops at the leftover lot once cash is recovered.
After cash recovery, short-horizon adjustments on that line stop. Later price drops change residual market value rather than the original outlay, and recovered cash can be reused to accumulate more residual lines.

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Scale-out position reduction3 readings Scale-in position adding10 readings Current trackDollar-cost averaging11 readings

A two-clock construction problem

Editorial interpretation: treat an open line as a two-clock construction problem. One clock is a short-horizon dollar-cost-averaging, scale-in-position, and scale-out-position grid that runs only until sale proceeds have returned the original cash outlay. The second clock begins at cash-flow-zero-cost, when the leftover residual-target-lot is held and no longer consumes working capital.

Size management after the line is already open

The procedure is applied only after the security and the opening time have already been chosen. It governs later size management rather than replacing selection or entry analysis.

Cash-flow-zero-cost and the residual-target-lot

The cash-flow goal is to retain a chosen residual-target-lot after sales have returned the original outlay. Cash-flow-zero-cost is the bookkeeping state in which those sale proceeds have returned the cash committed to the line while that residual holding remains. Tax basis on leftover shares is described as remaining at the purchase price.

Single-purchase construction

The single-purchase version buys enough shares that one later sale at a predetermined higher price can return the full cash outlay while the residual-target-lot remains. Required opening size equals residual shares plus residual shares multiplied by 100 divided by the planned percentage price increase.

In the single-sale illustration, 400 shares bought at 12 are cut by 300 shares at 16, returning 4800 in cash and leaving 100 shares.

Multi-point grids when the first sale is delayed

A multi-point version adds after declines and reduces after advances so the residual cash-flow objective can still be pursued if the first target price is delayed. Dollar-cost-averaging here means staged buying at successive lower prices so additional cash is committed on a fixed decline grid rather than in a single opening fill. Scale-in-position is a prescribed add after a defined decline, used so a delayed first sale price can still lead to a residual cash-flow target. Scale-out-position is a prescribed reduction after a defined advance, halted at the leftover lot once realized sales have returned the original cash outlay.

One illustrated grid adds 50 percent of holdings after a 25 percent decline and cuts 50 percent after a 25 percent rise. A simplified 3-point, 200-share increment is also used.

In the rising-price sequence from 12, sales at 15 and 18 take the 400-share starter to a zero cumulative cash balance with 100 shares kept, breaking the usual 200-share sale once the objective is met.

Reuse recovered cash and hold the leftover lot

Construction begins more concentrated than a fully split allocation. Recovered cash is then reused so more residual lines can accumulate over time. After cash recovery, short-horizon adjustments on that line stop and the leftover lot is held. Later price drops are treated as changes in residual market value, not as loss of the original outlay.

Educational research material, not investment advice. Historical source context does not establish present-day performance.

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