A.I.M. Users Bulletin Board

[SFSecurity]

Hi Gang, First of all I found a couple of minor errors in my modified AIM spreadsheet. Cell K8 should be =VLOOKUP(J9,V3:W6,2,FALSE), not V2.

Another thing is that one needs to enter the proper interval in cell G11 by hand to match J9, years, months, weeks, or days; otherwise you might get confused when you set J9 for calculation of the return over the interval you are studying.

Also in W3 it should be =W4*5, not 7 as there are only 5 days in a trading week.

Next, I've been looking at the volatility of various possible positions, especially ETFs/ETNs. Typically the 1x versions have much less volatility than bare stocks because of the diversity of their holdings. The 2x and 3x have more, TQQQ, as one example, has ~8% change up in price in the last 10 days, beta of 3.76 and SQQQ a change, down, of ~7% and a beta of 3.14. However, we know there is more risk in the leveraged ETFs/ETNs than the non-leveraged ones, like QQQ with a change up of ~2.4% in the last 10 days and a beta of 1.19.

Okay, why look at this? Because AIM looks for volatility to make money, as shown in the chart on page 64 of the 4th edition where there is a drop of 60% in three months followed by rise of 250% in the next three months. Only in a market crash do we get that down volatility, except when a company files for bankruptcy like VNR, and I've not seen that kind up in that short of time frame anywhere. Perhaps I've overlooked some but it is quite rare if it exists at all.

This chart is one of the limitations of Lichello's book, so I've been puzzling over what to do about this and have not come up with any good solution yet, perhaps there is none.

I've been looking at this with 50% cash, a range down from $10 down to $4.80 over 52 weeks and back up to $14 over 92 weeks, $0.10/week. I've been playing with the minimum share sale and the minimum $ amount which seems to work best around $900-$1000. At that amount one does not run out of cash as readily and it cuts the cost of trading.

What I do find is that Tom's use of 0% for the sell safe is quite a bit of help compared to the default of 10% but with the default 10% buy you still run out of money after 49 weeks. However, if you raise the buy safe to 15% you don't run out of money but you drop the return 5%. If you raise the minimum shares from 5% to 20% you raise the return ~2% and the optimal seems to be about 25%, which gets you ~5% more return over the same 146 week period than Tom's approach, almost 3 years, which gives you about 14% per year return better than the S&P 500 typically. However, 25% minimum stock sale is much more than the typical 5% or 10% usually called for. Maybe using LD-AIM is a better approach but I've not tried that.

However, the rate of change is still more than typical for most non-leveraged ETFs/ETNs.

Anyway, it seems that keeping our powder dry for the next while makes sense given the typical curve of the market, longer time up and shorter time down. Plus, using orcroft's, or other mechanisms, to delay buying during the slide down will put us in the best position to ride out the next bull market.

Best,

Allen