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Generally 30 year outcomes were within common average +/- 2 standard deviations, where AIM had a similar average outcome but achieved that with lower variance (standard deviation). So broadly around 8% averages for both stock and AIM, with stock 2% standard deviation compared to AIM's 1.5%, so lower (min) values of 8% - ( 2 x 2% ) = 4% SWR for stocks, 8% - ( 2 x 1.5% ) = 5% SWR for AIM
... as a guideline
Hi Tom.
If Portfolio Control was accelerated at a 1%/year monthly pro-rata rate from 1985 [prior PC x ( 1.01^(1/12)) each month], when dividends started to be taxed more, more of earnings tending to be retained, then the 2009 period AIM %CASH did dip to zero cash briefly. With that setting and changing minimum trade size from 5% to 10% you get back to a similar looking chart again. The larger minimum trade size slows the number of trades and helped to preserve cash more during deep dive events
Using Precious metals for 'cash' was better than using T-Bills (silver from 1933 to 1975, gold from 1976, as gold was prohibited to be traded in those earlier years).
A key factor is how AIM by building up cash reserves during Bull runs, helped attenuate the declines, portfolio drawdows were less deep, and in so doing increased SWR. With AIM using real (inflation adjusted) stock price as its input, 10% SAFE and Minimum Trade Size, monthly reviewed, traded on paper, and then at each year end using the year end AIM %CASH as the amount to load into precious metal at the start of the new year, the rest in stocks, leaving that as-is for the year (assuming dividends automatically reinvested to buy more stock shares) and the historic SWR oucome ...
Commonly stocks are assumed to have supported a 4% SWR, as the Total Stock Market (all stock) red dots indicate in the above chart. With AIM the SWR was increased to more than 5% (lowest of the black dots).
Overall rewards for AIM compared to TSM were similar, but achieved with less volatility, and averaged getting on for 50% 'CASH' (precious metals)
AIM'ing the real (after CPI adjustment) share price instead of the nominal share price helps direct AIM away from otherwise tending to build up too much cash reserves.
Best wishes
Clive
PS
A SWR of 5% means that you draw 5% of the start date portfolio value as your spending amount for that year, then each year thereafter you increase that $$$ amount by inflation as the amount drawn for spending in subsequent years. So its a regular inflation adjusted income year after year. Typically SWR periods are measured across a assumed 30 year period (see a 65 year old through to age 95).
:) ... and drink more juice
AIM of S&P500 real price
Thought yesterday might have been the start of another buying spree (deployment of AIM cash), but today is indicating otherwise (so far).
Hi Clive, Re: Aging with Grace and Humor...................
I saw this tee shirt while attending the IMSA races at Road America this last weekend.
😎
OAG Tom
Hi JD, Re: Current v-Wave status...........................
We can't say that the v-Wave didn't give us reasonable warning of the Storm the Financial District is experiencing this AM.
Both the v-Wave and the MRI were signaling a barometric pressure change well before this softening. While the MRI is my own home brew (going back to the Idiot Wave) and the v-Wave is built from Value Line's black box Appreciation Potential, they both have tracked quite well with each other.
There are more moving parts in the MRI so it can be a bit more responsive to sudden changes than the 3-5 year v-Wave but looking at the two standard deviation break points (Caution and Proactive) we see they are generally singing in harmony.
Thanks again for keeping us up-to-date,
OAG Tom
Hi Jake, Re: This week's v-Wave..............
You are correct, the v-Wave ticked upward a point to 50% cash for the 3-5 year "Stocks" value and 33% for the "Funds" value. The shorter term v-Wave stayed unchanged.
Here's how it looks in Living Color............
Best wishes for the coming week,
OAG Tom
July turned in a mixed bag of performances. There was really not much change at all from previous periods.
Tom's 10 Stock Composite Portfolio
(17% Cash)
Tom's 9 International "Style" ETF Portfolio
(20% Cash)
Tom's U.S. Business Sector ETF Portfolio
(16% Cash)
Tom's Converted IRA Portfolio (was Contributory until January 2024)
(25% Cash)
Mr. Lichello's AIM continues to be a reasonable cure for the Summertime Blues. AIM added to cash reserves in some of these while cash treaded water in others.
Best wishes,
OAG Tom
PS: my new office computer won't run my old picture editing software (company no longer exists) so I did these with "Paint." Resizing is something I'll have to learn!
Hi JD, Thanks once again for the data!
Of note this week is that if there is a quality view of the best and worst stocks, it wasn't as good as usual. 11 of the 41 stocks shown on Value Line's "Best Performers" list were 'unrated' for "Timeliness". 30 of the 41 stocks on their "Worst Performers" list were also unrated for this same measure. As far as their "Safety" ranking, 22 of 41 stocks on their Best list were showing 4 or 5 (lowest two quintiles) and 30 of 41 on their "Worst" list. These are exceptionally high numbers of unrated and poor safety rankings on both the best and worst lists. Maybe it's a sign of an odd form of speculation.
A new reader asked me some questions and I thought this reply might be a helpful reminder as to why I spent the last 4 decades gathering the data for these market risk measures. I imagine my weekly reports could use some points of reference. Most of the people reading this have followed my efforts for a long time and generally understand what it is I'm discussing. I've probably become lazy in not providing more explanation. Let's see if I can help fill in some gaps.
First, I've been a fan of Value Line for decades. Nobody ever accused me of spending too much time in the Library when I was a student. It was only when I was a young working stiff that I really began to visit such places. I'd look up companies I'd be calling on in Thomas Registry at first. Later I found Value Line and it became a regular place for me to study prospective companies on whom I'd call.
As I learned more about Value Line, the depth of its information began to show patterns. A basic survival instinct of humans is "pattern recognition" and I'm sure that was what was coming into play. One of the first patterns I began to notice was in one of their weekly Screens. On page 33 of their Summary & Index section they post the 41 best and worst performing stocks over the previous 13 weeks. Things noted were that sometimes stocks on the 'worst' list would later show up on the 'best' - and visa versa! Sometimes the 'best' list percent gains were huge compared to the losses on the 'worst.' Again, sometimes the opposite was true. There are 41 stocks listed in each column and sometimes a significant bunch on one list would all be from the same general industry (say "Retail" or "Energy"). Things learned:
1) the Best and Worst weren't always the best or worst but would swap lists
2) in bullish periods the best percentages far outweighed the worst percentages
3) in bearish periods the worst percentages far outweighed the best percentages
4) Business sector rotation can and does show up on these lists with multiple companies from specific sectors being represented.
From the first page of the Summary & Index Section I could pick up the weekly median Price/Earnings ratio of the 1700 stock Value Line universe. Also displayed was the median dividend and also their estimate of the Price Appreciation Potential. These also moved around based on bullish and bearish market conditions. High P/Es, low dividend yield and low appreciation potential usually coincided with markets topping out. The opposite was also true. Each week the previous bull and bear peaks for these three areas were also shown. Hmmmm. This might be useful if the data proved to be consistent!
Already, from these data points I could see some potential for improving my stock selections and also being able to independently judge ongoing market risk relative to bullish and bearish periods. Making better buy decisions is always helpful. Being cognizant of market participants' current mental state also seemed to have potential to help my overall efforts as an investor.
Other sources of data taken from Barron's became part of my weekly effort. Each seemed to tell me a different part of the current market conditions. By combining all this information in a spreadsheet I could grade each relative to their own history and the other components. I ended up with four overall. These are:
A) One told of investors' willingness to pay for company earnings compared to "risk free rate of return" of short term treasuries. (Relative Valuation)
B) One told of investors' "piling on" either winners (going Long) or losers (going short) on individual companies and sometimes whole business sectors. (Speculation)
C) One told of investors' short term consensus on market direction (Divergence)
D) One told of investors' interest in "What's New?" (Zealous IPO interest)
Weighing and combining these four proved to be a task all on its own. If one was bullish or bearish and the rest neutral, how would I interpret that? How about if two were at an extreme and two neutral? Etc. The histograms shown above let you look at how these things move around over time. Note what is shown in "Green" is when I'm most bullish and is contrary to what most people would be thinking at the time. None of the components are 'perfect' but the sum of them improves their judgement. Over time it has shown to be very good at calling out market bottoms. Market bullish periods can last far longer than would seem logical, so my efforts are not quite as good at calling market tops. However, being forewarned of building market risk helps to keep "irrational exuberance" at bay.
Best wishes,
OAG Tom
Thanks JD,
Best wishes,
OAG Tom
Here's our Market Risk Indicator in full color:
Best wishes,
OAG Tom
The first half of the year comes in positive, but not by great amounts. Here's the image summaries:
Simple IRA (converted from Twinvest to AIM in January, 2024)
(Cash Reserve = 24%)
US Business Sector ETF Composite
(Cash Reserve = 15%)
Tom's 10 Common Stock Composite
(Cash Reserve = 17% and reflects the Required Minimum Distribution for 2024
YTD results before distribution = 7.75%)
International Style-type ETF Composite
(Cash Reserve = 20%)
Cash levels improved while monthly performance varied. Overall, in a tricky year, I feel good about AIM's guidance so far.
Happy Independence Day and also Happy Financial Independence,
OAG Tom
Current v-Wave Histogram.............................
OAG
Steady, even as markets are heading into Summer.
OAG
Latest v-Wave histogram:
There's quite a bit of difference recently as to how the Dow 30, NASDAQ Comp and the S&P 500 are moving. I believe this is due to the breadth of the markets' movements. One stock can make a big splash in a shallow puddle.
Best wishes,
OAG Tom
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Here's a handy "Quick AIM Calculator" for finding the next AIM directed Buy and Sell prices for your portfolio holdings:
A.I.M. Users Bulletin Board (AIMUSERS): Thanks LC, Now they can use the "calculator" again! (advfn.com)
While the AIM book is no longer being reprinted, it is available from Amazon for their Kindle for $5.99.
http://www.amazon.com/How-Make-Stock-Market-Automatically-ebook/dp/B002VKJ1EI/ref=sr_1_1?s=books&ie=UTF8&qid=1395757939&sr=1-1&keywords=lichello
Mr. Lichello wrote the book on AIM in 1977. In the mid-'80s he put an infomercial on AIM on late night TV and attempted to sell his workbook and audio tapes.
(1) How To Make $1Million In The Stockmarket Infomercial - 1985 - YouTube
It's a reasonable review of the AIM method for those who are unfamiliar.
Run A Successful Equity Warehouse
Welcome to the AIM Users Bulletin Board. This is the thread to post your thoughts, questions and comments on the use of Robert Lichello's Automatic Investment Management for handling the risk of being involved in the Equities markets.
The AIM strategy gives the user LIFO gains of 20% minimum if the method is followed "by the book." It is ideally suited to those seeking long term investment growth while managing the risk of being invested.
Thoughts on being a successful Individual Investor
I wrote this book review a long time ago. It's a trader's interpretation of
Sun Tzu's "Art Of War." I related it to AIM as best I could.
------------------------------------------------------------------------
Mr. Lundell says, "Today's financial markets are the last bastion of unabashed conflict.....
To participate, you must be your own general, devising a strategy, gathering information, executing your plan, and adapting to the situation."
How can we use AIM and the v-Wave for strategic and tactical planning to carry out Mr. Lundell’s requirements to participate in the Equity Markets?
"Be your own general"
You are in charge. You are responsible. When you win, you benefit. When you lose, only you are to blame.
a) Broad trends persist. Discover them. They will survive boom and bust.
b) Don't contemplate engaging in war while beholden to another. They could become your ruler!
To me this means "Stay away from Margin Buying unless you are certain of victory."
c) Establish and maintain a "Baseline of Survival" for your command.
This is the "income" side of my overall portfolio.
d) Know that reality is governed by Darwinism; Long Term Survival belongs to the fittest.
"Devise a Strategy"
Our strategy is to sell inventory into market strength and to buy into market weakness. Robert Lichello's AIM algorithm provides us with a systematic approach to follow that employs this strategy.
a) Sell quality merchandise to all those willing to pay.
b) Buy quality merchandise when the price offers reasonable hope to resell at a profit.
c) Let the allocation of resources and inventory be governed by the course of the market and AIM's guidance.
"Gather Information"
Today there is no excuse for not being informed.
a) Differentiate between information VOLUME and QUALITY.
b) Differentiate between FACTS and OPINION.
c) Find good sources of judgement where you cannot act as judge.
d) Information is trusted only when provided by those proved trustworthy.
"Adapt to the Situation at Hand"
The v-Wave measures general U.S. Market Risk (and may be sensitive to world market risk) from low to average to high. This helps you gauge the situation by:
a) Gauging your initial cash reserve requirements on new investments
b) Gauging your on-going cash reserve requirements on established investments
c) Judging whether to establish a bias for accumulation or distribution
d) Possibly starting no new AIM accounts when the v-Wave is showing High Risk
e) Possibly ignoring all AIM Buy Signals during v-Wave High Risk events.
f) Following all AIM buy and sell signals during v-Wave Average Risk events
g) Possibly ignoring all AIM Sell signals during v-Wave Low Risk events
h) Re-assessing your "Baseline For Survival" at times when AIM has your account heavily in Cash
i) Always attempting to beat measured inflation by 5 basis points minimum after all taxes and living expenses are paid. If you do this consistently, in good and bad markets, you will be winning long term
j) Possibly using "vealies" when your positions are cash rich relative to the v-Wave. Limiting supply helps to keep Momentum player’s Demand high.
"Execute your Plan"
Set the plan in motion; know that it takes time for realization. Follow the plan without hesitation allowing the goals to be realized. The strategy is sound so execution is all that is required.
a) Buy when the plan says
b) Sell when the plan says
c) Be very patient when no buy or sell signals are being generated
Reading Mr. Lundell's interpretation of Sun Tzu's work will help you focus on your own plan. It will arm you with knowledge of what others not using AIM are doing in the market. Understanding Short Term Trader's strategy and tactics is like having a spy in the enemy's camp. AIM users can profit by knowing just how these people think and act. AIM acts as almost a mirror image of what goes on in a trader's mind.
-------------------------------------------------------------------------------------------------------------
The v-Wave........
Mr. Lichello used fixed cash starting levels; first it was 50/50 then 67/33 and in the last edition of his book 80/20 for the Equity/Cash ratio. This "one size fits all" approach is like a broken watch that shows the correct time twice a day but is wrong the rest of the time!
Minstrlman, a regular contributor here, helped gather data from Value Line and formed a highly capable risk-cash indicator for our use. Since then, J Derb continued his work each week. As an adjunct to the AIM methodology we now have a Cash Indicator which helps guide our starting and ongoing Cash Reserve level of AIM relative to measured market risk. It can be used as a general market barometer or specifically with the AIM method. The v-Wave (or VW) is derived from the Value Line "Appreciation Potential - Next 3-5 Years" (VLAP) indicator shown weekly in their Summary and Index Section for their 1700 stock edition. Looking back through V/L's history we find the peak Appreciation Potential occurred 12/23/1974 at +234%. Our continuous database starts January of 1982 and we scaled our "zero cash" to the market risk low point of early that year. We take the VLAP and manipulate it to get an indication of how much cash should be reserved for diversified mutual fund AIM accounts. It should be multiplied by your stock or portfolio's BETA to get the cash reserve level of less diversified or more aggressive holdings.
v-Wave Weekly Cash Reserve Indicator For AIM Users
Current years of the v-Wave:
For diversified portfolios the Median value for the v-Wave is 29.5%. High Risk is 34% cash or higher for individual company stocks. Low Risk is 24% cash or lower.
To get a more proper cash level for individual company stocks multiply the current "Diversified" value by 1.5. This gives us 51% as the high risk threshold and 36% for the low risk boundary.
Looking at the cumulative risk of the v-Wave gives another perspective:
Cumulative v-Wave is calculated by taking each week's v-Wave Stock value, subtracting the median value from it and adding it to the previous total.
Significant historical events are shown nicely here and the v-Wave's response at those times.
v-Wave Calculations can be found at #30219. The data are a work-in-progress for now.
TooFuzzy provided us with a handy "Quick AIM Calculator" Here's a link to that page:
A.I.M. Users Bulletin Board (AIMUSERS): Thanks LC, Now they can use the "calculator" again! (advfn.com)
(follow the link on the above page)
AIM has a predictable pattern of "cash burn" in a declining market. Depending upon the SAFE settings AIM will generate new buy orders sequentially as share prices decline. It can be helpful to know in advance about how deeply AIM is going to draw down one's cash reserves. This link is to the "Cash Burn" AIM page. It shows various end points based upon the starting cash reserve level. Here's a link to that page:
"" rel="nofollow noopener noreferrer ugc" target="_blank">http://www.aim-users.com/cashburn.htm"; rel="nofollow noopener noreferrer ugc">A.I.M. Cash Burn Rate (archive.org)
Best wishes,
Old AIM Guy
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