A.I.M. For Exchange Traded Funds (ETFs)

[Toofuzzy]

I posted this on the Haiku board

When impossible
becomes inevitable
Then risk becomes known

my debt to
Alexis de Tocqueville

Toofuzzy

[dougburkeaz]

Just published a 10-year back-test of Lichello's AIM system. Here is the link:

http://hubpages.com/hub/robertlichelloAIMSystem

Your feedback is greatly appreciated!

Thanks, Doug

[Toofuzzy]

Hi Tom101

We have discussed this ad nausium in the past and decided there are issues with the 2x and 3x funds (and particularly the inverse funds) that make them not the best choices for AIMing. While volatility is a good thing I guess you can have too much of a good thing.

In general I happen to like to AIM ETFs either by style or industry. They are safer than AIMing individual stocks in that they can't go to zero.

Thanks for the question
Toofuzzy

[tom101]

Is anyone using the 3xETFs with the AIM system?
If so, how are your real results.
If not, are there issues?

[OldAIMGuy]

Hi Toof, Re: getting one's MoJo back.........

Here's today's trade in my IRA (finally a SELL!):



The stacked bar graph is a bit confusing in that I robbed Peter to pay Paul back in February when I reworked the portfolio toward what I'd wanted - a real time version similar to the "Ultimate Buy and Hold Strategy." CHY is one of ten components and represents about 18% of the total value.

This is the effect on the total portfolio:



The patient is still in a coma, but there's signs of brain wave activity.


TV

[Toofuzzy]

Hi Cindy

I originally AIMed two mutual funds from 1995 to 2003 when I decided to switch to ETFs. I struggled with the decission of investing by style or industry and eventually bought 10 industry I-Shares funds and later a few individual stocks. I am thinking I want to simplify things now.

A while back I posted my idea for what I call "slow AIM". Basically it is what most indexing proponents propose. Buy a few diversified funds with your age invested in a short term US treasurey bond fund and rebalance once per year at most.

That has you buy stocks low and sell stocks high just like AIM.

So I came up with a portfolio of

IVE (large value)
IWN (small value)
EFA (foreign) could be split into other funds (fxi, eeb)
ICF (REITS)

and IEF (US Treasury)

I would make the first four equal value each year and IEF would be kept to my age %

At the present time the bond fund could be SHY and when rates peak (invert) again could be switched back to IEF.

The above is the most simple investing method I could come up with. It is what I suggest to people who are just starting to get in to investing and / or are investing phobic.

I still struggle with wanting to own individual stocks though for a few reasons. None are valid in terms of investment results for me.

1) With all the money in funds, no one has any control of company governance or executive pay.

2) I would like to cherry pick what I feel are the better stocks in an index. This would make more sense if I was using industry funds. (In reality I am a lousy individual stock picker and timer)

Not always,
Toofuzzy

[CindyH]

Hi, Toofuzzy, Good advice. I have bought sector ETF's and am happy with the choice. If anyone can be happy in these trying times. Buying as an investment goes lower is a different and unsettling experience. I'm just focusing on the long term with the belief that it will work out in time. I like this much better than trying to second guess the course of growth stocks. Yes, I'm losing money as the market goes down but I was also losing getting stopped out. It is rather nice being able to buy at better prices. I can see a time when I may be pleased with a pullback. I do appreciate hearing the experiences of all of you who have done this for awhile. There's a lot to learn. Cindy

[Toofuzzy]

Hi Cindy

>>>I am new to AIM and have read the boards and Lichello's book. Does the decreased risk in using sector ETF's outweigh the increased volatility of individual stocks in terms of the effectiveness of AIM?<<<<

I will second Tom's reply. ETFs and mutual funds can't go to zero. That is very important with AIM since it has you buy as a security goes lower.

You can diversify by style (large, small, forien, REIT, bond) or by industry.

Don't try to maximize returns by getting fancy. Getting rich slowly avoids going broke fast.

Toofuzzy

[OldAIMGuy]

Hi Clive, Here's hoping the bunnies have plenty of alfalfa!!!

Best regards, Tom

[ls7550]

Thanks Tom. I'll have a more detailed look. First impression however is that DON does look a bit overweight in financials.

I opine that we've seen the prolonged bull, have already suffered a (hopefully signficant) proportion of the bear correction, are back to around fair long term price levels and are now due to enter a prolonged bunny period.



Such times are when AIM like investing really shows its worth.

Best regards. Clive.

[OldAIMGuy]

Re: Portfolio Design with ETFs.............
Hi K,
You're moving in a good direction. As we're finding out, all funds aren't created equally. I was mindful of slightly higher annual costs in some of these substitutions. I am also mindful of some lower daily trade volumes - but my account is small enough that it shouldn't be an issue for me.

I agree, the "international" funds from Wisdomtree are quite attractive, too.

Best regards, Tom

[OldAIMGuy]

Hi Clive, Re: High Yielders...................

Well, these new ETFs are a long way from being "individual company stocks." These ETFs are formulated with an emphasis on dividends no matter where their location.

For instance, I switched from IJJ (Barra Mid Cap Value Index) with a yield around 5% to DON (Mid Cap Dividend Fund) with a yield of around 7%.

Industry Diversification As of 09/30/2008

          DON                          IJJ 
      
 (From ETFConnect.com)

Both are diversified and therefore possibly less risky than selecting individual company stocks for their specific yield. There's been more than enough price movement in essentially all of these holdings for future return added from volatility capture. Most are, as the graphs show, well below their near term "sell" thresholds. That's a symptom of getting this new strategy started just as the markets started to unwind in late 2007. I never got as much of the one bond fund sold to properly fund the rest of the account and the cash reserve.

Going foreward, if AIM continues to generate "buy" signals, I'll use the dividends to accumulate more shares (not much more than "dollar cost averaging") in those segments that are furthest from their Portfolio Control values. Eventually all will be more reasonably balanced with regard to the original design targets of UBHS.

So, while not the same funds, there's a lot of "value" decision making that is included in selecting for "dividends" and there's a lot of dividends when selecting for value.

Also, this account is a retirement account and as such can't be tapped for a while yet (the tragedy of being too young!).

My current income from my work still pales compared to my investing. One could consider my vocation an avocation at this point. Business is good, however.

Best regards, Tom

[karw]

Hi Tom,

It is nice to see you move into the Wisdomtree ETFs.
I have been buying into them as well since october.
The end of year dividends were very nice!

Your idea of rotating ishares into Wisdom makes sense.
I will start looking at that as well.

Nice thing is that Wisdomtree is using quarterly divs now!

Wisdomtree offers international sector funds. That together with for example Powershares sector funds would be a nice basket.

I am looking at something like that.

For now i have DON, DES and DLN for the US market.

Kind Regards,K

[ls7550]

Hi Tom. Re: Higher Yielders

The subsitutions were generally done to attain higher dividends for now. My hope is that the higher yield will help total return in the long run.

I've been doing a bit of the reverse and moving out of individual high yielding stocks and more into market index funds.

I felt uncomfortable under recent conditions as to (a) the survivorship of even the largest of household name stocks and (b) the security of dividends (and associated impact upon share price that dividend/earnings cuts might have) - so I opted to migrate towards market wide indexes for the greater security against total failure(s), using a style that expands exposure up to a maximum of 200% in order to generate the desired additional volatility.

Unlike you (now that you're back in the rat race and have a wage coming in) I depend solely upon investments for income and haven't the luxury of riding out dividend cuts. So my income is now largely being derived from volatility capture. I'm using the Dow as the principle holding as I wanted UK Pound currency diversification and have my Ladder set to a 19000 top (100% out) and 3642 bottom (200% in). The Ladder is structured to become fully 1X exposed at around current price levels, below that I start adding in 2X exposure progressively until its fully 200% stock exposed at that bottom price level.

Under current volatility levels that should generate sufficient net volatility capture benefits for my living expenses.

I had initially started with a 5700 Dow bottom price level, but felt more comfortable passing on some of the additional volatility capture benefits for the greater downside cover.

When things start to stabalise I'll revert back into high yield individual stocks once the outlooks appear more certain.

Best regards. Clive.

[CindyH]

Clive, Thank you again for your help. I can handle a portfolio of sector ETF's. I have played around with zig zag for IBB to choose a percentage that has several buy/sells a year then added 2x minimum order % + Buy Safe + Sell Safe (adjusting minimum order size) to match the percent used in zig zag. If I have figured well I should have some action during the year. Is that right?

I really like your suggestions about how to use 1x and 2x together. Knowing me I am going to want to try that but not yet. I would like to get some idea of how more basic AIM works and how it feels emotionally. After being beaten up by this market I think I need to go slowly. Happy investing to us all! Cindy

[OldAIMGuy]

Hi Clive, Re: Rebalancing Portfolio Control to Model......

I did this recently with my retirement account. I also switched a bunch of the components to be of a "better" nature.

http://www.aim-users.com/etfunds.htm

I'd never quite gotten the full Ultimate Buy/Hold Strategy in place because of market conditions in November of 2007, so took time now to get the Income components balanced against each other as well as the other pieces.

The subsitutions were generally done to attain higher dividends for now. My hope is that the higher yield will help total return in the long run.

Best regards, Tom

[ls7550]

Hi Tom, Re: Rebalancing of ETF holdings on a periodic basis....

...rebalance the PCs toward the model rather than the value of the holdings....

Reducing the PC of the one that has drifted higher than its target then tends to push some selling. Increasing the PC of the one that has underperformed the group tends to push the buying.

That's a really neat idea Tom. I like it :)

[OldAIMGuy]

Hi Clive, Re: Rebalancing of ETF holdings on a periodic basis....

One thing I've been doing is mearsuring the drift of the Portfolio Control value of each holding from the original model. This is slightly different from measuring the direct value of each position against the original model.

Since the Price/Share has a "hold zone" range that can vary day to day, it seemed to make more sense to rebalance the PCs toward the model rather than the value of the holdings. This seemed a "gentler" adjustment.

Reducing the PC of the one that has drifted higher than its target then tends to push some selling. Increasing the PC of the one that has underperformed the group tends to push the buying.

So, it has the net effect of being similar yet won't necessarily drive buying or selling immediately. (it could, but usually only when the markets have been "dramatic" in their movements)

Best regards, Tom

[ls7550]

If you then periodically rebalance between those, reducing the ones that have risen the most, adding the proceeds to the ones that have performed less well, then you'll also be doing a bit of a AIM like style across the individual accounts.

One way to do this is to maintain weightings of each individual AIM account (cash+stock) and when any one becomes 50% more than the median then reduce that account by 20% to 25% and add the proceeds to the AIM with the lowest weighting.

For example if I had 5 AIM's each individually holding a single ETF then the initial weightings (cash+stock) might be 20% of the total fund value each. When any one AIM rises to 30% weighting of the total fund value then reduce that account by 20% to 25% e.g. 6% to 7.5% (dragging its weighting down to 22.5% to 24% relative to the whole), and add that 6% to 7.5% to another AIM account that might have declined to perhaps 14% weighting (uplifting it by 6% to 7.5%).

Such action will typically involve just one partial ETF sale and another ETF buy. If in contrast you attempted to rebalance all parts back to equal weightings periodically then that would involve more sells/buys (higher trading costs).

[ls7550]

I'm feeling more confident that sticking to sector ETF's is the way for me to go at this time. Also got the message that larger trades less often are more profitable than small and frequent.

Larger trades less often are not always more profitable. It's a balancing game. If the trade range is too wide then the position becomes little different to that of buy-and-hold, never adding nor reducing.

On a gross basis the smaller more frequent gains should compare equally to larger less frequent gains. Where the larger trades however are never triggered then the smaller more frequent approach is generally the better (for volatility capture benefits). Where the two compare on a gross basis however then obviously the fewer large (less brokerage fees) trading approach is the better choice.

ETF's are a good choice of candidate holdings but require a sizeable amount of funds to be able to diversify across a range of such ETF's (if AIM'ing each individually). Generally you'll want to invest no lower than $20,000 in stock value (perhaps $30,000 total) per ETF AIM account.

Where funds are limited then you may be better served with a single market ETF such as one that tracks the Dow. The initial appearance is that Index funds don't provide sufficient price volatility for AIM's needs - however - consider as an example one of Tom's IRA ETF holdings - DLS. Since mid June 2006 to present DLS had an average of 1.53% daily high/low price range. In contrast the Dow had 1.2%. If instead of the Dow the DDM (2X Dow) had been used then the daily high/low average range was 3.3% over the same period.

Which implies that a blend of 1.2(Dow) + 3.3(Ddm) = 1.53(Dls) (e.g. a blend of 15.7% DDM and 84.3% Dow) would have been comparable in daily volatility terms to DLS over that period.

On an actual gains basis DLS made a -40.6% loss, the Dow -27% and DDM -63%. On the one hand we have DLS declining -40.6% and on the other we have a blend of 84.3% Dow and 15.7% DDM exposure declining a combined -32.65% (in proportionate terms).

A benefit of using a blend of 1X index and 2X index in such a manner is that you don't actually need to use the 2X until all of your cash reserves are exhausted. If for instance currently 60% 1X and 10% 2X exposure levels were being indicated then that amounts to an overall exposure indication of 80%, which could be actually managed by holding 80% in the 1X and thereby avoiding the generally higher costs involved under 2X funds.

Another factor is that a blend of ETF's will at times have some up, others up less (or down) which overall will have a tendency to make the overall ride smoother. If you then periodically rebalance between those, reducing the ones that have risen the most, adding the proceeds to the ones that have performed less well, then you'll also be doing a bit of a AIM like style across the individual accounts. This is where over the longer term the multiple ETF AIM approach can add value over the single Index AIM based approach.

[OldAIMGuy]

Hi Cindy, Re: Interesting Posts...................

We have collected a lot of Q&A stuff here. There's lots of good ones at:
http://investorshub.advfn.com/boards/board.aspx?board_id=992

Other than that, I guess we'll have to wait for me to write my memoirs!

Best regards, Tom

[CindyH]

Tom, I have spent hours reading all the very old posts and have learned the answers to most of my questions. What a gold mine the old messages are! Thank you so much for your messages now and in the past. I'm feeling more confident that sticking to sector ETF's is the way for me to go at this time. Also got the message that larger trades less often are more profitable than small and frequent. Is there a collection of old winning messages somewhere on the Board? I have started my own but it would be nice if it already exists. Cindy

[OldAIMGuy]

Hi CindyH, Re: 2x Funds - both bear and bull funds......

These funds tend to have relatively high internal costs. Also, they are built to match the changes in an index on a daily basis, not necessarily consistent with yearly efforts.

There are three things that an investor can look at as goals. They're not mutually exclusive, either.
1) Price Appreciation over time
2) Dividend Capture ofer time
3) Profitable Volatility Capture over time

AIM is a method of #3 but will work with either #1 or #2. One's Total Return usually will be some combination of the three. In the case of AIM users we can improve our total return through methodical capture of the markets' price movements over time. This can be with positively correlated or negatively correlated investments.

The very short list of things we can control as investors includes our own costs and also, through selection the annual costs of the funds we choose (assuming we're not looking at individual company stocks). So, selecting for low cost investments helps our total return as does keeping our trading costs as low as practical.

AIM doesn't necessarily need #1 as is shown in Mr. Lichello's study. We can do well with cyclical stocks and industries even if we don't see "higher new highs" even over years. As long at there's reasonable percent change between annual highs and lows, AIM should be able to trade profitably.

Hope this helps,
Tom

[ls7550]

Hi Cindy.

Would a portfolio filled with 2x funds managed by AIM work well?

Yes for stock price volatilty capture (up/downs), but no for price appreciation capture. AIM serves as a mechanism to capture (a) price appreciation, (b) volatility and (c) downside cost averaging (loss limitation).

2X funds generally wont provide 2X returns over the longer term and may not even pace 1X after costs are considered. They're suitable only for volatilty capture and/or leveraging short term trends.

Conventional AIM targets a bit of all three types of a, b and c investment benefits, 2X funds tend to reduce that down to more of (b) at the expense of less of (a) and (c).

This is where the 2X Ladder concept that I outlined comes in as that scales up AIM like volatility capture benefits, such that less of (a) and (c) isn't so much of an issue.

Ladder is a lot more difficult to describe than it is to use in practice. Here's a link to an example calculator and if you spend a little time experimenting I think you'd soon get the general idea.

http://www.jfholdings.pwp.blueyonder.co.uk/cindy.htm

I'm not leaving that link up for very long, as I don't really want someone just pinching the idea and then selling it on as their own work, so I'd suggest you make a copy of the web page onto your local PC.

Studying the example you'll see that the potential volatility capture gains can be good, but it also carries risks (stock price breaking out below the bottom price level).

One way that you might use the concept is perhaps 50/50 divide your total fund, buying stocks with one half and then applying the other half to the Ladder style. Rebalancing periodically back towards 50/50 levels.

You can tune the top and bottom price range and step sizes according to your own fund size value and personal risk tolerance levels.

Best. Clive.

[CindyH]

Thank you very much, Tom and Clive. I have discovered the 2x ETF's which will certainly provide the volatility that AIM seems to like. Also the 2x sector ETF's through Proshares. One thing that concerns me is the low volume. Is that a problem with AIM? Would a portfolio filled with 2x funds managed by AIM work well? It seems like that would be a way to deal with volatility- profit by it. However, many 2x funds lost 60% plus during the last year so risk management would be important.

I actually discovered AIM after I realized that the only thing that was making me money in this market was buying SPY when it was in low 80's and selling at 90. Slow but sure. Good to know all of you have been making money this way for years and in an ordered way.
Clive, Your suggestion is intriguing but a little too sophisticated for me at this time. Let me try the basic, then I will get back to you for more suggestions. Cindy

[ls7550]

Hi Cindy.

One option that you might like to consider is to drive volatility.

For example you might use the vWave stock/cash indicator to create your own virtual Index comprised of part DDM (2X Dow) and part conventional Dow (1X), with the vWaves stock element representing DDM exposure and the cash representing 1X Dow exposure. So if the current vWave was 79% stock, 21% cash the virtual index would be allocated 79% DDM and 21% DOW (for an overall equivalent of 179% stock exposure). Unitise the combination to produce a current (virtual) value, and update over time.

At your review date, first update the virtual index unit value and then apply AIM (part stock, part cash) to that in the normal manner (adding or reducing to/from real DDM/DOW holdings when AIM indicates a trade).

Its an additional layer to manage, but not that difficult, and I suspect you'll find the effort worthwhile.

I'm personally using something along this line for my speculative element (around 10% of my total fund value, against which I've estimated and target a 20% to 40% p.a. return), but in a more aggressive manner and on a day trading basis that primarily only targets volatility capture benefits alone (little/no regard to price appreciation capture benefits).

Best. Clive.

[OldAIMGuy]

Re: Benefits of diversified investments vs benefits of individual stock volatility...............

Dear Cindy, Excellent question. As a diehard stock picker for decades, it seemed an easy question to answer back in 1992. Back then there were no such things as ETFs (but there were closed end funds). The usual Mutual Fund was diversified across many different business sectors as well as diversified by multiple holdings in each sector. These were very bland investments for AIM. At best they followed the trend of broad market indexes - at worst they never managed to do as well as the indexes. So, the decision was pretty easy. Only if an account was very small in value did one use mutual funds with AIM.

If an account was large enough, then one could single out companies from a variety of business sectors and then have at least some diversification even if one had very few holdings in each sector. "Single Stock Risk" still played havoc with such portfolios, however.

With the advent of exchange traded mutual funds and specifically business sector funds the issue got a bit more cloudy. With Sector ETFs we gain a lot of diversification in numbers of companies in a sector. With multiple sectors we gain diversification similar to what a traditional mutual fund might have.

Yes, there's decreased intra and interday volatility with ETFs but we reduce "single stock risk" by a substantial amount. The sectors still follow a trend and the best stocks in that sector with be the trend leaders on the way up. If the market gets frothy, sometimes those best stocks will also be the ones leading the sector downward if they've become overbought during the rise.

So, since Mr. Lichello's model doesn't trade all that frequently when relatively standard settings are used, we don't miss that much "action" using ETFs.

Think of using an ETF sector fund as being an excellent filter for Signal To Noise. It tends to decrease the noise and therefore make the true signal more apparent. With AIM and ETFs the trend is what is going to be the dominent activity generator. You can expect multiple orders in the same direction rather than a lot of reversals. A typical pattern would be a bunch of buys, like what would have happened in 2008, then followed by a long series of sells.

The net effect in the long term tends to improve overall returns by reducing the number of severe losses. Think of it as taking three steps forward and only on back while an individual stock might take 4 steps forward but then two back.

Of course, if we now see 10 years of cyclical market with essentially zero slope, AIM will improve overall returns because of capturing whatever volatility occurs. In some studies I've done, AIM and a well selected group of very mature and high dividend paying stocks did better than owning a bunch of very high BETA stocks in total return. Again, these stocks didn't trade often, but quite effectively. Along the way there were also dividends collected.

So, I hope this helps a bit. ETFs transformed my own efforts as an individual investor. I own very few individual company stocks any more. ETFs and CEFs are all that I currently own in my IRA, for instance.

Best regards, Tom

[CindyH]

I am new to AIM and have read the boards and Lichello's book. Does the decreased risk in using sector ETF's outweigh the increased volatility of individual stocks in terms of the effectiveness of AIM? I have spent much time comparing the charts of ETF's and stocks like WMT, JNJ, and XOM and have wondered how the smoothed ride affects the profitability.

I am exhausted trying to decide which investments are going up and losing money on most decisions. AIM seems to be a better way to take advantage of lower prices and the possibility of trading ranges for the future. Thank you for sharing your experiences. Cindy

[OldAIMGuy]

Hi Lisa, Re: Corp paper and the future...............

Corporate paper certainly was nicely discounted over recent months. With that so were corporate bond funds. Years ago when I used to buy individual corporate bonds, this was when I liked to be doing my buying - when the discounts on the paper were the greatest and the effective yields were also very large. So, in buying corp bond funds (and preferred funds) we're essentially doing the same thing.

There's a greater chance of some of the paper defaulting than other times, but that has been priced into the funds. This also means there's a good chance for some capital appreciation along with cliping some nice coupons along the way. The deepest discounts are in the Corporate and REIT areas right now. Govt. paper, depending upon average duration isn't discounted much at all. In come cases the longer govt bond funds are actually selling at a premium to NAV and to the papers' value at maturity.

So, assuming the folks at Calamos and other funds have been doing their homework, they should have positioned these funds for a nice future.

A significant portion of my overall portfolio is committed to such funds, as I use them to pay my living expenses. I add to those positions when there's a lull as in the last 15 months so that my income keeps up with inflation. Sometimes many years will go by with the yields and Premium/Discounts in an area that's not very attractive. So, we need to make Hay while the sun's shining.

Best regards,
Tom

[LisaAu]

Hello Tom,

As you've undoubtedly observed CHY has been moving nicely higher since the low on 12.15.08. What next do you suppose?

Care to make any forecasts, speculations, etc.? Are high yields and convertibles the way to go, at least in part?

Best wishes for the season and the New Year!

[jmp]

Tom, I did some additional testing of my theory last night and saw what you describe. Whenever I went full cycle and returned to the original price it looked good but an up or down bias favored one of the two funds.

I appreciate you comments and insight.

John

[OldAIMGuy]

Hi J, Re: Inverse funds...............

There are some "non leveraged" ETFs that follow various indexes on both the bull and bear sides. Essentially 1X funds. This don't have the high expense ratios that the 2X funds have which should help to improve overall performance if you are to try this.

Given enough full cycles, such an idea should work. However, to be "best" it would require complete reversion to the mean periodically with no advance in the overall long index values over time. While we do have periods of essentially "flat" markets (range bound is a better description) the historical trend has been upward. So, the "short" fund would be betting against the long term trend and therefore never equalling the "long" fund. Potentially the short fund, after a few cycles, could use up a greater portion of the cash reserve than it manages to return. This could create an imbalance that might never be recovered.

If one saw the onset of a major macroeconomic change (such as the advance of socialism as the main engine of the U.S. economy) which would create a long term range bound market, then working the two funds against each other would work well.

Best regards, Tom

Best regards, Tom

[jmp]

Blended account using inverse ETF's.

I would like to expand on a question I had a few posts back. I am new to AIM so this may be really stupid but it seems to me that using inverse funds could help performance. For example - I have 30,000. I put 10,000 in QLD and 10,000 in QID, and 10,000 in cash. I would track each separately but use a common cash account. When one is selling the other should be buying so cash flow is fairly flat. The preliminary test with a spreadsheet looks promising.

Does this have potential or is it a stupid NEWBIE idea?

In reality I would not use a 2x fund but I haven't had a chance to research to see if there is an inverse fund that is not 2x.

Any comments are appreciated.

[Toofuzzy]

Hi jmp

>>>>Thanks for the reply. I just got the 3rd edition of Lichello's book today and will be reading up on AIM. Is there a minimum or maximum weekly or monthly volatility I should look for in an AIM stock?<<<<

No not really. I happen to like ETF's as apposed to individual stock because ETF's can not go to zero (I hope >grin<)

I would either diversify by style (large, small, foreign, bond, etc) or by industry.

If by industry I would pick industries you believe will do well over MANY years (even if not now)> Look at Tom's writeup on his original retirement account picks.

Having said that healthcare has not been very volatile over MANY years while biotecnology might be a better pick.

So maybe some picks like

Finance (yea I know but at least we can hope they are at a bottom)

Biotechnology

Technology (of some sort)

Energy

Minerals (another industry that has to come back eventually)

Consumer PRODUCTS (as apposed to stores, I personally hate retail)

S+P devides the S+P 500 in to 10 (I think) broad industry groups, You can either use their funds (will only hold the 500 large caps though) or just use that as a guide as to what to pick from using I-Shares ETF's for instance.

By the way. Let's say you want to own 6 industries ultimately but "only" have $30,000. You could set up AIM accounts with 2 of them ($10,000 stock and $5,000 cash each 10% SAFE, 5% Min Order size) and then add another fund every year or two or three as you have additional funds.

I would stay away from all the tweeks to AIM for now. You have enough to learn. Low Down AIM particulary will have you sell completely out when the market "eventually" rises.

Hope that helps
Remember I am

Toofuzzy

[jmp]

Thanks for the reply. I just got the 3rd edition of Lichello's book today and will be reading up on AIM. Is there a minimum or maximum weekly or monthly volatility I should look for in an AIM stock?

[Toofuzzy]

>>>>I have recently discoverer AIM and have a question. Would AIM work well with a pair of ETF's like QLD and QID? If I set up 2 accounts at $10,000 would the results cancel out each other since the funds move opposite each other?<<<<,

If you Aimed them separately it would be OK but using one as the cash side for the other is definately not a good idea.

You don't need to chase volatility though. QQQQ is volatile enough.

Also the 2x funds and negative funds do not mirror the index in the long term for some reason.

An Idea of mine:

Start AIMing QQQQ (or whatever other index you want) with 30 to 50% cash NOW! and when the cash level goes way up (probably at the next top) after you have had a whole string of sales, at that point start AIMing an inverse fund as a separate account. Hopefully at that point one will be sucking money and the other will start spitting it out.

Toofuzzy

[jmp]

I have recently discoverer AIM and have a question. Would AIM work well with a pair of ETF's like QLD and QID? If I set up 2 accounts at $10,000 would the results cancel out each other since the funds move opposite each other?

[OldAIMGuy]

Re: Calamos CEF Dividend Cuts.............

Thank you Lisa for keeping us informed. Here's another link on Calamos' action:

http://biz.yahoo.com/prnews/081103/aqm121.html?.v=51

It was expected, but that doesn't necessarily soften the blow. I think it's pretty well priced into the stock. We'll see how the market reacts tomorrow.

Best regards, Tom

[LisaAu]

Calamos reduces monthly dividend for closed-end funds (CHI, CHY, CSQ, CGO and CHW):

http://www.marketwatch.com/news/story/Calamos-Closed-End-Funds-CHI/story.aspx?guid={D7D14380-6831-4417-AE20-B2C807D06BCB}

For CHY that's a 30.27% cut!

[OldAIMGuy]

Hi Lisa, It's been a beautiful Fall here in the middle west, too. It might be too soon to declare that we've put a floor in for CHY or any of the closed end funds, but it seems like the footing is firmer now.

Both CHY and its sibling CHI have excellent yields. Dividends are going to have to be watched carefully. All the closed end funds are having trouble selling their "preferred" shares on which they depend.

Best regards, Tom

[LisaAu]

Well, Tom, CHY was up nearly 13% today!

What do you make of that very large one day move?

Enjoying our Native American summer here in Northern California.

[OldAIMGuy]

Thanks Bob, Those are a good start.

Have a great weekend,
Tom

[BowlerBob]

Tom,

Here are some I look at.

IWM >> UWM (2X)

SPY >> SSO (2X)

QQQQ >> QLD (2X)

DIA >> DDM (2X)

Regards,

Bob

[OldAIMGuy]

I found Proshares has some bull and bear ETF leveraged items.

http://www.proshares.com/funds/sso.html

It's a 2X S&P500 fund.

Best regards, Tom

[OldAIMGuy]

Hi ALL, Re: Leveraged "Bull" ETFs; 1.5X or 2.0X?............

What are some symbols for some leveraged bull funds in ETF form? I know there's some around, but can't remember who sponsors them.

Best regards, Tom

[Toofuzzy]

Hi Tom Re Riskgrades

Thanks for the reply. The bar chart you had seemd to show the overall risk as zero and I had trouble getting the chart to come up.

Toofuzzy

[OldAIMGuy]

Hi Toof, Re: Riskgrades for my IRA..................

It's through the roof right now showing all components in triple digits with most near or above 200.

Also, it's now inaccurate because for some reason DLS isn't showing up in their database. However, while this account has been pretty neutral on risk over time, it is now looking like a nuclear power plant without water circulation!

Another part of the very high riskgrades rank right now is that zero cash position. The 100% invested profile now does nothing to moderate the overall risk. Still it's showing a "diversification benefit" of 50 out of 209.

Usually most of these components are moderate in the riskgrades assessment but the unusual market conditions right now skew the charts a bit. What is odd is that it is currently showing my portfolio as being only 34% as risky as the stocks of the S&P 500. I'm not certain that all the functions of RiskGrades are working at this time.

Best regards, Tom

[Toofuzzy]

RE RISKGRADES

Hi Tom

I was wondering what the riskgrade of your IRA portfolio ends up being.

I was fooling around with 10% in ICF, EEB, GLD, EFA, IVE, IWN, and 40 % in CHI and the riskgrade was quite high. Putting half of CHI in TLT lowered it quite a bit but still high. (I was trying to mimic your IRA with ETFs and fewer funds)


Another portfolio 15% in IVE, IWN, EFA, ICF, and 40% in CHI was also quite high. Any thought as to what you would add to this second portfolio and what you would reduce?

Just playing around.

PS: Is there a way to find an asset class to add other than by trial and error?

Toofuzzy

[Toofuzzy]

Hi Tom

I added some shares of CHI to my IRA. I am looking to add some additional in my taxable account as that is where I have some funds. I was hoping it would drop this morning with the agreement falling apart. No such luck. May try to add some shares at $10.50

I wonder what it will take for CHI to recover? Does the income exist to cover the dividend or are they just returning capital based on their payout policy.

Toofuzzy

[OldAIMGuy]

Hi TF, Re: Owning both CHI and CHY..............

There's no diversification benefit or at least not much, but sometimes one is selling at a higher yield relative to the other. CHI has greater leverage and therefore greater volatility which has, in this environment brought about a nice premium in yield over CHY.

It's only in a couple of accounts where I own both.

Best regards, Tom