A.I.M. Users Bulletin Board

[ls7550]

If the wealthy aren't spend all that much perhaps they've been advice that the bull market is getting long in the tooth

I have a AIM that just uses inflation adjusted US share price only (S&P500 index) monthly values as input (ignores dividends and cash interest on the basis that they broadly offset inflation). From 1871 the cash % from that has varied between 0% and 70%



zooming in



and as of January 2017 that AIM indicated increase cash reserves by around 5% (to 57.6%)

Historically aligning actual cash % to that AIM, adjusting at the times AIM suggested (traded) historically worked well. 50% initial stock, 10% for minimum trade size and safe, monthly reviews settings ... and AIM compared in reward to 100% buy-and-hold, whilst averaging 43% cash since 1871. Providing liquidity - buying from the scared, selling to the greedy 'trading' worked out well. Not that surprising as Jo Average does tend to have a tendency to buy-high, sell-low



I'd imagine that charts outcome of Jo Average not even beating T-Bills was primarily down to being greedy during high 1990's prices, selling after the 2000 to 2003 dot com bubble bursting, and maybe capitulating during the 2008/9 financial crisis and have missed the subsequent rebound ... to perhaps be contemplating buying in heavily more recently after such strong gains since 2009.

AIM has in more recent years been providing shares to those that are being tempted by rising prices back into stocks. The wealthier are happy to provide such shares and build up cash reserves in readiness for the next time that Jo Average wants to dump all their shares.

There's some interesting history in that post 1871 data. For the first half typically dividends (yield) were higher than cash (interest) and AIM performed better than buy and hold i.e. the higher rewards from AIM countered the lower income from holding some cash. For the second half that switched around and cash paid more than dividends whilst AIM marginally lagged buy and hold i.e. higher cash interest negated the lower AIM gains. Over the total period to date, both dividends and cash compared and AIM compared to buy and hold.

A great historic choice of 'cash' wasn't T-Bills, or longer dated treasury bonds, or even a barbell of the two ... but a stock/gold 50/50 barbell. Holding that for AIM cash added 2.25% on top of S&P500 total returns. Given in more recent years relatively common negative real yields (partial treasury 'defaults' ... year after year) a stock/gold barbell as 'cash' is reasonably appropriate IMO. Two undated 'bonds' in effect with high price volatility, but tending to have multi-year inverse correlations with each other.

75/25 stock/gold, when you consider 50/50 stock/gold to be bond-like, is a form of more volatile 50/50 stock/bond holding. When that's applied more aggressively such as under AIM the rewards have been good whilst the risk (drawdowns) have been lower than buy and hold.

The main benefit of AIM IMO is its tendency to lead you away from being a Jo Average investor towards actually achieving the broader market average in practice (around 80% of investors don't achieve the market average in practice) ... or possibly even better.

Clive.