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Hi Tom!
It's been so long since I read your archived bit on LD-AIM, I had to reread it!
Anyway, you correctly wrote that 'The downside is that one can sell out of a holding that has begun a very long and profitable price appreciation'.
I just want to clarify that since I have been running LD-AIM, very few holdings have 'Sold Out'.
Only 1 (HOME) did not have intervening Buys.
1st Program bought @ $5.00, Sold @ $5.82, $6.42, $7.07, $7.84, and $8.56. It only took 3 Weeks!! 40% Profit of $1,996.
3 months later, the price dropped to $5.46, so I started a 2nd LD-AIM program on it. 18 months, 9 Buys and 18 Sells later, it sold out of actual shares for a profit of 62%, $14,016.
3rd Program lasted 6 months before the company went private. +25%, $18,67.
Most programs ended due to Acquisition (eg: SNDK, YHOO, CREE, etc)
And a few due to bankruptcy early on (Hopefully I pick them better now).
VWave 3.0*
Suggested Starting Cash Value For New AIM Accounts/Positions
Individual Stocks
High Risk: At or above 51%
Neutral: Between 37 and 50%
Low Risk: At or below 36%
Diversified Funds
High Risk: At or above 34%
Neutral: Between 25 and 33%
Low Risk: At or below 24%
_________________________
Week of September 23rd
_________________________
Short Term (18 Months)
Individual Stocks: 42% (Up 15 from previous week)
Diversified Mutual Funds
or Portfolio: 28% (Up 10 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 45% (Up 3 from previous week)
Diversified Mutual Funds
or Portfolio: 30% (Up 2 from previous week)
Oscillator: .60 (Up 2.74 from previous week)
*See posts #44585 and #44588 for Tom's explanation
VWave 3.0*
Suggested Starting Cash Value For New AIM Accounts/Positions
Individual Stocks
High Risk: At or above 51%
Neutral: Between 37 and 50%
Low Risk: At or below 36%
Diversified Funds
High Risk: At or above 34%
Neutral: Between 25 and 33%
Low Risk: At or below 24%
_________________________
Week of September 16th
_________________________
Short Term (18 Months)
Individual Stocks: 27% (Down 10 from previous week)
Diversified Mutual Funds
or Portfolio: 18% (Down 7 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 42% (Down 1 from previous week)
Diversified Mutual Funds
or Portfolio: 28% (Down 1 from previous week)
Oscillator: -2.14 (Down 1.22 from previous week)
*See posts #44585 and #44588 for Tom's explanation
Good morning Toofuzzy. Thank you for this suggestion. I currently have a "cash" account but should be able to go back to "margin" without much difficulty.
I did have a "margin" account when I was working with a full-line broker - many years ago. He convinced me to go into a number of wild and convoluted strategies that had my head spinning at the time. These positions were all designed to break even - at the very worst. Funny, after a number of margin calls, I realized that there was no free lunch.
I have the same issue with Schwab. At one time they automatically sold the MMF to cash now I have to do it myself. They do send notification and email that a trade has taken place so I sign in and make the sale of MMF. Otherwise you can end up with problems or in a brokerage account I go into margin.
Adam
Old-john
If you have a margin account it is not the end of the world to have to pay interest for a few days.
You might also be able to place conditional orders.
Toofuzzy
Hi Tom
We should have another meeting.
You could fund your trip by selling rings.
Toofuzzy
Hi OJ,
Re: "Thank goodness I have zero interest in ever going to a casino or betting establishment."
Ha ha ha!!! In 2000 we held an AIM Users Meeting. When we took a poll on where people wanted to have the meeting they chose Las Vegas!!!
Best wishes,
OAG Tom
Good morning Tom. I haven't used GTC limit orders yet. Probably something that I should seriously consider. Set and forget.
After each buy, I do need to sell units of a mutual fund to pay for the purchase. My broker will not do this automatically. I'm a little concerned that I might not realize that a buy has occurred and may miss a settlement date. I'm guessing that there must be some sort of alert system in place that I'm not aware of.
As well, I would probably miss the adrenaline rush of watching the price close in on my target. Thank goodness that I have zero interest in ever going to a casino or betting establishment.
Good morning John, Re: Thoughts on AIM Targets and getting good execution.............
Do you use GTC Limit orders at those target prices? If so, then you can relax and the market will execute those orders when the targets are met. Sometimes blips at the Open will fill outstanding GTC Limit orders at prices "at or better" than the target price. Those always make me happy.
I don't exclusively use GTC Limits but probably well over 90% of my trades are done that way.
Best wishes,
OAG Tom
Thanks Tom and Jon for your kind and thoughtful replies. I'm fortunate that I have a relatively large cash reserve for this particular AIM program. I'm getting ready to "buy from the scared" - even though I have already done it twice (LOL). Thanks for the reminder about the self-adjusting nature of AIM. A few pennies either way wouldn't really make much of a difference over several transactions. I suppose it might come down to one's personality type. Being stubborn to a fault, I'll probably continue to stick with the exact calculated prices going forward.
All the best,
John
OJ
How would you have felt if you did purchase the shares at the higher price but then it dropped to the 5 dollar range and your cash level was low? Emotions work both sides.
You entertained some good questions many of us have pondered. Tom’s explanation sums up many of the considerations we all have thought about.
Take care.
Jon
Newaimer
I guess sometimes it is better to be lucky than smart.
Toofuzzy
Hi OJ, Re: Keeping on target with AIM as your guide......................
Here's some things to consider:
1) How's your cash position? Is it large enough to compensate should your adjusted purchase price turn out to be a bit higher than the ETF's future price?
2) Was your last trade a Sell? If so, what is the discount at $6.64 from that previous sale? Does that discount look pretty good compared to awaiting an additional $0.03 discount?
3) Sometimes we negotiate as sellers with the purchasing agent. Sometimes we're the purchasing agent and are working with the seller. We want to look good at our job no matter which side of the table we're on.
4) How long has it been since the last trade? If you're trying to conserve cash and the previous trade was a buy, look at the delay time between sequential buys. I generally use a 30 day delay between sequential buys. That lets the dust settle if it turns out to be "falling knives."
5) Note that AIM will change your Next Buy and Sell targets to compensate for changes in actual trade price relative to the old targets. So, in the long run a few cents probably won't change much for the future. If you buy too high, it will then make you wait longer to sell.
Hope this helps,
OAG Tom
My apologies for this incoherent post. It should read:
Greetings. I hope that everyone had a wonderful weekend. I have a small initial position in a 2X etf. It has been stuck in "no man's land" for several weeks. Finally, it came down very close to my next buy price at 6.61. It actually hit a low of 6.64 and I was tempted to buy at that level. I did not buy and of course, it has since gone up to around 7.20 today. Just wondering how long-time aimers approach this type of situation. Would you have bought at around 6.64 or maintained discipline and waited? Thanks in advance for any words of wisdom.
Greetings. I hope everybody had a wonderful weekend. I have a small initial position in a 2X etf. I has been stuck in "no man's land" for several weeks. Finally, it came down very close to my next buy price at 6.61. I actually hit a low of 6.64 and I was tempted to buy at that level. I did not buy and of course, it has since gone up to around 7.20 today. Just wondering how long-time aimers approach this type of situation. Would you have bought at around 6.64 or maintained discipline and waited? Thanks in advance for any words of wisdom.
VWave 3.0*
Suggested Starting Cash Value For New AIM Accounts/Positions
Individual Stocks
High Risk: At or above 51%
Neutral: Between 37 and 50%
Low Risk: At or below 36%
Diversified Funds
High Risk: At or above 34%
Neutral: Between 25 and 33%
Low Risk: At or below 24%
_________________________
Week of September 9th
_________________________
Short Term (18 Months)
Individual Stocks: 37% (Down 8 from previous week)
Diversified Mutual Funds
or Portfolio: 25% (Down 5 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 43% (Down 2 from previous week)
Diversified Mutual Funds
or Portfolio: 29% (Down 1 from previous week)
Oscillator: -.92 (Down 1.33 from previous week)
*See posts #44585 and #44588 for Tom's explanation
Hi Tom.
Here in London we have Investment Trusts, stocks whose sole purpose is to invest in stocks (bonds/whatever). Many of those permit degrees of flexibility and even incorporating some (typically modest) leverage (or de-leverage/cash).
PNL for instance (trustnet link) - whose primary objective is to protect and increase (in that order) the value of shareholders’ funds. Others such as FCIT have been around for over a century (FCIT is a world stock tracker type choice).
Comparing my AIM records for a stock/gold/cash asset allocation however with the likes of PNL and broadly AIM did a better job of dynamically adjusting weightings than PNL. Matched more like a FCIT/PNL blend (as a form of stock/bond type holding) rewards, with PNL alone type (reduced) risk. So as a manager, a simple robot (AIM) that was fed just price alone, did as well/better than highly paid managers (PNL's fees are a rather heavy 0.75%/year, so in fairness the managers might have added value, but fundamentally just paid themselves the benefits).
And with AIM you have full control, not at risk of a change in management/staff/policy.
As a retiree I could just hold PNL, or a FCIT/PNL combination, and draw a regular inflation adjusted income (SWR) from that. But I can in effect pay AIM what the managers pay themselves to run those funds, and AIM has provided just as good guidance historically, adjusted appropriately around the highs and lows. For me major stock funds are good enough, no need for sectors. REIT wise - well we have enough in home(s) value to not really warrant adding more exposure. Current and future inflation adjusted pensions add a solid foundation (could at a pinch get-by with just the rent having been paid (owner occupier) and pensions covering basic living expenses).
I do use a modified version of AIM however. I track inflation adjusted prices as that better levels things down IMO. I also have AIM trade less often, 20% SAFE, 10% minimum trade size amounts (trade larger amount less often). Even then I don't actually follow through with those trades, just on paper, and instead use the ongoing weightings as indicated by AIM at the time to adjust actual holdings once/year or so, similar to when others might be rebalancing back to their 60/40 or suchlike weightings, but instead to AIM indicated dynamic weightings.
One benefit of SWR style income withdrawals is that its inflation adjusted, so last years drawn $$$ income amount is increased by CPI, which is a comfort in times of high/rising inflation, when workers might be battling to get their wages increased in line with inflation. A risk there however is that your personal rate of inflation may very well be higher or lower than the change in CPI. Certain foods I like for instance (such as Genoa cake) have near doubled in price over the last year. I very much suspect that when it again becomes cheaper to buy the ingredients and heat the ovens required to bake those cakes that the prices wont halve back down again.
Clive.
Hi Clive, Re: AIM Business Plan for Long Term Investors...................
Thank you for your well conceived post. On occasion I will watch one of the "business news" channels. Afterward I wonder why I gave up that time for such little value.
When I think about inflation and its awful consequences on the elderly and those dependent upon "fixed income" it heightens my awareness of callous "federal" decisions being made. In the new millennium those who were savers were punished for their frugal nature most years. Even now interest rates across the maturities are far below the current erosion rate of purchasing power.
Does the sun still shine above the clouds? Yes. Real Estate was gaining nicely as inflation ramped up. Having a healthy REIT in ones inventory at their Equity Warehouse not only provided a steady source of income at reasonable annual return, the underlying properties were being reappraised at higher values. As you suggest, it might be good to have a variety of products in the warehouse. Each one will share the sunlight at its own time. Some are in shadows now but later will get full benefit of daylight.
A friend asked me whether a "business sector" AIM portfolio should start with each sector equally weighted. After thinking about it I answered "Only if you don't mind not matching Index performance." I didn't mean it would out-perform or under-perform, just that it wouldn't match. Most indexes are not equally weighted by sector. Right now, for instance, over 60% of the S&P 500 weighting is in just 4 sectors. So, "bench-marking" to attempt to match that index would need to be weighted in a similar fashion even with AIM managing the individual sectors.
Over time, an equity warehouse built with sector ETFs will drift in weights from the designated index after which it is modeled. If it started "equal sector weight" in 10 years that won't be the case any more. If it started as a match to the index weights at the start, in 10 years it won't match the index sector weights. AIM is responsive to the markets, not the index weights.
A similar thing can be said about weighting for income and growth. A 60/40 Growth to Income inventory most likely won't have those same weights in a decade. Is it appropriate to force the warehouse inventory makeup back to that weight? AIM would say no. Do the benefits of such a ratio relative to the warehouse manager's needs override AIM's competent allocations? I can't answer that.
There may be times when adjustments can be made to the ratio that seem appropriate. In my own equity warehouse there have been times when the growth side of the business has built up tremendous amounts of what seemed to be surplus cash. Usually this has occurred as the income side has been trailing in performance but still has good yield. I, as general manager have during those times shifted some of the excess cash to the income side to help compensate for rising living costs. It wasn't done to rebalance to a specific ratio, only to help offset cost of living increases. There might be a better way, but this has worked for me. Such ratio adjustments have been done with the "savings and loan" side of the business.
AIM is a great manager of inventory. Overall it is does a decent job of inventory allocations, too. I'm inclined to let AIM make most of these decisions. I'm not a fan of periodic inventory allocation adjustments. In an environment of 'all ships rising' periodic forced allocation adjustments take money and pump it into inventory that might already be somewhat overpriced. AIM is more sensible than that.
I appreciate your observations. Thanks for bringing the AIM lens into sharper focus.
Best wishes,
OAG Tom
PS: This article on sector weights and capitalization might prove to be informative for some:
https://www.thebalance.com/what-is-the-sector-weighting-of-the-s-and-p-500-4579847
Hi Tom
But also potential buy opportunities in the making.
Investing as a 'business' and a business with multiple product lines (stocks, cash, gold, whatever) tends to be more sustainable than a business with just a single product line (stocks). Bad times for one product line (sun-cream in winter, rain macs in summer) can be good for other product lines. And where AIM provides a ongoing indicator of appropriate amounts of capital to deploy into each product line.
Life is full of risks, no guarantees. Our business might go on to be worth multiples more in inflation adjusted terms decades later, or might falter/fail after 25 years of having provided a 5% inflation adjusted start date business value yearly income. As a business AIM/investing is one of the best, as you can work whenever and wherever you desire, typically requires relatively little effort, where the staff have all been replaced with 'robots' so no stressful personnel issues and where the business accommodation could be a simple portable shoe box.
Cancer for one can be the source of benefits to others - harsh but just a fact of life. AIM as a business is pretty much self directing, leaving our sole decisions pretty much being limited to just defining which product lines the business will carry. Beyond that and its more a case of just sticking our nose in once/month or so, just to ensure that the capital allocation manager and sales/purchase teams are keeping on top of their game and sign off (trade) their books.
Our business wont be the greatest performer, that is inclined to be awarded to those whose business carried just a single product line. Neither will it be the worst, again where that is inclined to be just a single product line. Generally however the tendency is for AIM to be up-there, closer to the best than the worst. Whilst many might opt for a business carrying a constant 60/40 rain-macs/sun-cream, AIM is more inclined to dynamically weight such that when you look back at its average weightings they were more appropriate according the circumstances endured than that of a fixed 60/40 (whatever) choice.
Best wishes.
Clive
AIMStudent.
Thank you for passing along those backtests!! I appreciate it. I will review them later.
The NASDAQ 100 is my risk-on go-to. These will be a great read
Dan
One more for NewAIMer,
Missed this one: https://investorshub.advfn.com/boards/read_msg.aspx?message_id=154092765
-AIMStudent
Hi NewAIMer,
You might have a look at the posts below. You could roughly approximate TQQQ based on these.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=153977582
https://investorshub.advfn.com/boards/replies.aspx?msg=153979905
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=154092315
Best regards,
- AIMStudent
Hi Toofuzzy,
I totally agree with you. You do need a reasonably sized cash reserve for any NASDAQ-oriented ETF. With the TQQQ being the most cash hungry in market downturns. However, I have owned my TQQQ position since about 2011, and I backtested it as if I would have AIMed it instead of just buying and holding the shares. If I would have started with an 80/20 split, It would have only taken about half of my cash during each of those really bad times..... Most recently this year, it took slightly less than half of my cash had I used the AIM method for the 10 years I've owned the shares.
I didn't think that was too bad. There are a couple of things to remember, however. First and foremost, I hold the shares in my regular brokerage account and have been slowly selling off my position in the TQQQ up to the top of my tax bracket over the last 5 years, and will probably continue to do so. At least until I get it back down into a more manageable position I will use AIM from now on.
Let me be crystal clear, I'll admit that I'm not a genius. 10 years ago I bought the shares and didn't really know what the heck I was buying. I had no appreciation for what a triple leveraged ETF wasn't how it rebalances daily. All I know is that I let it go and resisted selling and it grew into a huge position. Way bigger than I expected. I was just looking on my computer and my cost basis is $1.63 per share, split-adjusted. Even after its significant decline this year, I'm still up 15x - 20x. The AIM position in the TQQQ will be financed completely with the house's money, that is, it would be financed with winnings from that position. I don't have to risk any of my own starting capital. So, I'm pretty lucky. (If I was only in that position with some of my other holdings!!)
Anyway, I don't know how you or other people on here handle speculative holdings. I always consider between 10% and 15% of my portfolio as speculative. Meaning that I will have a significantly higher risk in that portion of my portfolio than anywhere else. For me, it helps make things interesting and keeps me engaged. If all those positions went to zero, I wouldn't be happy about it, but it wouldn't affect my retirement date either.
I've been lucky with that TQQQ position. It's been good to me even though I didn't deserve it. If I was as educated as to how that ETF works back then as I am now, I would have probably never opened the position.
I like the AIM methodology. It would have reduced some of my risk over this last downturn. Also, Tom showed me and gave me some brief commentary on how to use the V-Wave to adjust my cash position to start. I plan on implementing that as well. It's time to dial back some risks and have a more mechanical investment strategy going forward. AIM is wonderful for that.
Thanks, Toofuzzy!! I have appreciated all of your input. For a greenhorn to the AIM system like me, I have appreciated your help and everyone here pitching in and filling my knowledge gaps.
All the best!!
Dan
VWave 3.0*
Suggested Starting Cash Value For New AIM Accounts/Positions
Individual Stocks
High Risk: At or above 51%
Neutral: Between 37 and 50%
Low Risk: At or below 36%
Diversified Funds
High Risk: At or above 34%
Neutral: Between 25 and 33%
Low Risk: At or below 24%
_________________________
Week of September 2nd
_________________________
Short Term (18 Months)
Individual Stocks: 45% (Down 10 from previous week)
Diversified Mutual Funds
or Portfolio: 30% (Down 7 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 45% (Down 1 from previous week)
Diversified Mutual Funds
or Portfolio: 30% (Down 1 from previous week)
Oscillator: .41 (Down 1.43 from previous week)
*See posts #44585 and #44588 for Tom's explanation
Hi Dan
You need that huge cash reserve with TQQQ.
You will run out of cash otherwise when it drops 70 - 90 %
Toofuzzy
And now we have the ability (at least with some brokers) to trade fractional shares with low-to-zero commission rates. To me that represents a remarkable advance.
As an example ... I have a "testing-1-2-3-4" account currently that has a low dollar balance distributed across several AIM portfolios, and my trades often amount to only a few dollars each.
This is possible at all only because of the ability to trade in fractional shares, and it's practical in terms of cost only because the commission rate for these trades is effectively zero.
Another boost to AIM that was not available to Lichello was the advent of the ETF. This is an ideal vehicle for AIM as it removes most of the risk of hitting a deep diver stock which was an achilles heel for AIM/
Hi Dan, Re: Options, LEAPS and such in conjunction with AIM..............
Fellow AIM user Jeff Weber has written a short book on using AIM with LEAP contracts. Here's a link to his Amazon book page:
https://www.amazon.com/AIM-Millions-Stock-Options-Scientific-ebook/dp/B09FYM1RKL
I've not attempted this for myself. My use of options has been very limited over the years and only as a supplement to AIM's usual selling activity.
With your experience with options trading it might offer you some ideas.
Best wishes,
OAG Tom
Hi JD, Re: v-Wave.........................
See Post 46051 for the latest v-Wave graph......................
OAG
Hi Dan, Re: "vealies", AIM and Cash Reserves...............................
There are a couple of ways to add vealies to your AIM activity.
1) If you want, you can pick an arbitrary upper cash percentage and, when your AIM engine reaches that level, substitute vealies for AIM Sells until the cash is diluted to below that maximum lever, then resume selling. During very long bullish periods this will keep your cash reserves at or near that peak percentage and also advance your "next buy" price slightly with each usage. A pattern of AIM Sales mixed with vealies will show up in long bullish periods.
2) Use a cash barometer that relates to market risk as the maximum cash level. (something like our v-Wave)
Using the v-Wave as the maximum cash level helps to give the cash reserve percentage something that relates to market risk. If, market risk is lower, then vealies would start at a lower cash level and conserve shares. If risk is higher, it would allow you to sell and raise additional cash for future use and portfolio protection.
I have been doing #2 for a long time now. It took time to trust the market risk indicator but I believe it's allowed AIM to "let it ride" a bit further during longer bullish periods and also advance the first buy back price slightly with each vealie usage.
A third possibility is just not to sell when AIM has lots of cash. However, that doesn't advance Portfolio Control and doesn't raise the next AIM buy target. So, it just becomes a dead zone in the AIM history. It also introduces an emotional variable that might be counterproductive. (sometimes the cash seems like too much and other times too little - investment mood swings!) Having a rules based method of putting a ceiling on the cash level helps reduce such mood swings.
Best wishes,
OAG Tom
Hi Ray,
I'm new to AIM investing, but I will give you my opinion, for what its worth. But I'm not sure that QYLD would be a great choice for AIMing. I'm fresh blood here, so maybe I'm not your best choice. My opinion is that it might not be the best because those dividend ETFs, especially the ones that sell at the money calls like QYLD, tend to have an overall capital depreciation over time with regard to their share price. They do throw off a lot of dividends, but the share price over time is going to erode because selling at the money calls doesn't give the stock any room to appreciate before it gets called away.
I think it's a fine ETF if you're looking for dividends only, or possibly income. However, I think that because the share price tends to drift lower over time, You would end up consistently buying shares and end up depleting your cash reserve with no hope of further appreciation in the share price (Strength) which to sell against. Also, the ETF is only been around a few years, maybe since 2015 or 2016. Not sure if that's enough data to feel good about AIMing it or not. The chart on that thing shows a consistent drift lower. I have absolutely nothing against QYLD as a dividend machine, I just feel like within a few years you'd be fully invested with all of your capital...... without hope of selling the shares at a profit. This wouldn't allow you later deploy that profit to repurchase future shares at a discount.
Just my opinion, does that make sense?
Dan
Thanks guys,
Until recently.....I had absolutely no idea what Vealies were. I appreciate you taking the time to expose me a little more to some of the ideas around beginning my aim portfolio. I am currently mostly in cash, (80%) as my current methodology dictates. I like the idea of aim because it allows you to reduce share count as prices rise sharply. The idea of the Vealies does intrigue me though. Increasing my portfolio control by half when AIM indicates to sell is interesting. Sounds like a way to hang on to more shares longer-term because of the positive drift over time in the markets.
I've messed around backtesting a few different ETFs going back 20 years like the QQQ. Also tried backtesting and the TQQQ .....in a shorter time duration because that particular ETF didn't start until 2011. I liked the TQQQ because of its leverage..... it fires signals more often and therefore shows the effectiveness and movement of the AIM strategy. I started with an 80/20 split. The problem with the AIM method, as you're aware, and as I'm sure the Vealies work to address, is the crazy amount of cash, in terms of allocation, you end up with in a relatively modest number of years. Cash that's sitting there doing nothing. I know you guys probably know this stuff by heart, but I'm a huge options trader and just recently started messing around with the AIM method after discovering Lichello's book.
The problem I discovered running both of those ETFs is that over the years, running a portfolio with no additional contributions is that although you started with an 80% stock allocation and a 20% cash allocation, over those years you end up with about the opposite. About 20% or so in stocks and 80%ish in cash. Even though AIM did a tremendous amount of buying in the early 2000s as well as 2008 and 2009. The massive bull markets that came after those significant downturns in the market created a huge cash hoard in the NASDAQ AIM portfolios. Obviously, in a market that moves higher pretty consistently long term, you miss a lot of gains. I know the true AIM method says put it in some sort of bonds. I have nothing against that. It just seems like it's a crazy amount of cash to be sitting on the sidelines, even in bonds. I realize that's where the Vealies come in.
I still don't fully understand the improvements Tom Veale implemented to improve the performance of the AIM method. I'm working on it though. Any cliff notes versions of adaptations I'd love to know more about. The split safe helped a bit in the portfolios. Taking every buying opportunity and selling only when the trigger allowed for 10% or more in selling in any particular month did indeed improve the long-term CAGR. Additionally, starting the portfolio with a higher allocation to stocks rather than a 50/50 blend also yielded better results. The simple fact is that historically, the market wants to grind higher. Being able to take advantage of buying dips and bear markets is a plus.
Thank you all for your contributions to my questions. I totally appreciate it.
Regards,
Dan
Re: Covered Call ETFS
Hi all. It's been a while.
Any thoughts on AIMing covered call ETFs like QYLD?
They have the volatility of the market, as well as their own volatility created by the CC. They also pay out a income of about 10%.
Any thoughts would be appreciated.
Ray
VWave 3.0*
Suggested Starting Cash Value For New AIM Accounts/Positions
Individual Stocks
High Risk: At or above 51%
Neutral: Between 37 and 50%
Low Risk: At or below 36%
Diversified Funds
High Risk: At or above 34%
Neutral: Between 25 and 33%
Low Risk: At or below 24%
_________________________
Week of August 26th
_________________________
Short Term (18 Months)
Individual Stocks: 55% (Up 10 from previous week)
Diversified Mutual Funds
or Portfolio: 37% (Up 7 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 46% (Up 1 from previous week)
Diversified Mutual Funds
or Portfolio: 31% (Up 1 from previous week)
Oscillator: 1.86 (Up 1.25 from previous week)
*See posts #44585 and #44588 for Tom's explanation
Hi Clive, Re: Phasing in.....................
I like your idea of getting involved at 1/3 of available funds being the initial starting point. It makes sense then to let the market be the guide for the residual funding. There's a better chance with a positive long term market slope of benefitting that way.
At the time my brother came up with Termvest people were having very high yielding CDs maturing and had large "lump sums" to move to another place in the markets. (late '80s and early '90s) Generally he considered 12 monthly terms to be good. So, 1/12th was moved toward the market each month with the Equity/Cash ratio being decided by the TV code. That smoothed the re-entry to the markets.
Great discussion,
OAG Tom
Hi Tom.
The approach/concept I was outlining to Dan was a combination of lump-in and average-in, in around equal measure, but with the optionality to go all-in if/when stocks became relatively cheap.
Start with a conceptual target of a core 33% lumped in, adding another 33% perhaps averaged in over a decade to end at half having been lumped half averaged-in. But if prices dive deep enough go all-in.
For example AIM started in 2000 (stock high) that way (Vealies for all sell trades) had deployed all of cash by mid 2006 in a manner such that you ended with 1.5 times as many shares being held than had you lumped in at the start of 2000. Which could be considered as having purchased stock at a 33% discount compared to the lumper, or where if the lumper has a minimum 4% SWR potential, the AIM'ers minimum SWR potential was an effective 6% SWR.
That was for a relatively bad start date. In a stock do well situation you might lump a third in immediately, average in another equal amount over say 10 years, have started with 33/67 stock/cash, ended with 67/33 stock/cash, averaged 50/50 stock/cash. Over times when stocks do well, 50/50 portfolios also do OK (just not as well as if you'd been all-stock). But if additionally AIM has you at some point going all-in, in having followed all buy trades but Vealie'd all sell trades, then overall the rewards can be close to that of having lumped all-in from the start.
Basically start a AIM with 66% initial cash, Vealie all sell trades and once all of cash has been deployed you're done. You've bought in at a discount to 'average' and in so doing relatively outperformed the average - forever thereafter.
That's different to Term/Twin Invest which a pure average-in manager, doesn't automate the optionality of going to all-in. You could lump 33% in, Term/Twin Invest another third, keep a third in cash that you lump in if/when prices seem low, but that introduces human emotion/selectivity/manual-timing instead of letting AIM do the timing for you automatically.
Might not hit the lows, late 1929 stock peak start date for instance and all of cash was deployed 'too early', no cash remained to buy into the late 1932 lows as all of cash had been deployed by mid 1931. But still had 50% more shares than a late 1929 lumper, so lost less, recovered quicker. Would still have been uncomfortable in having gone all in to see further stock prices (halving again), but that relatively quickly recovered back up again, at least compared to a 1929 lumper.
Fundamentally diversification and averaging. A third immediately lumped in, another third averaged in, so combined lump/averaging rather than either alone, and a further third to lump in when prices dive deeply. Yielding better overall risk adjusted rewards. And all automated by AIM (with Vealies).
Clive.
Yesterday OAGEW had to part with 10% of the position in Ford's stocks (F). Shipping those shares out that were accumulated during Ford's recent decline was gratifying since the price/share represented a LIFO gain of nearly 45% from the last inventory addition.
Best wishes,
OAG Tom
Hi Clive and Dan, Re: phasing into an AIM position...........................
My brother suggested a modified form of Mr. Lichello's "Twinvest" for phasing into a new AIM position over time. He named it TermVest. You select the term over which the lump sum is to be worked into the market position and Termvest would give you the amount you should add each period to have it fully deployed by the end of that term.
https://web.archive.org/web/20120902234042id_/http://www.aim-users.com/qanda.htm#q5
It helps with opportunity risk and is responsive to any severe market moves while the term plays out.
At the end of the term, the account will have both equity and appropriate cash and be ready to be turned over to AIM for continued investment management. If one treats each term purchase as an addition to the program, then the Portfolio Control would be the sum of all those additions. Again, it would be an appropriate PC starting point for AIM management going forward.
Hope this helps,
OAG Tom
Chairman - OAGEW (Old AIM Guy Equity Warehouse)
Hi Dan.
As others have indicated with Vealies you increase Portfolio Control by half the amount of stock value AIM indicates to sell, and don't sell any shares.
Are you familiar with SWR, safe withdrawal rate? Commonly suggested as being 4%. i.e. at the start you draw 4% of the portfolio value as income for the first year, and then uplift that $$$ amount by inflation as the amount drawn in subsequent years. Which provides a regular inflation adjusted income (assumes all dividends and interest are reinvested, but obviously as part of actual management some/all of dividends and interest might form some/all of the SWR value being drawn, maybe with a surplus that gets reinvested into stocks, or where dividends/interest isn't enough and some shares are also sold to fulfil the $$$ amount being drawn).
That 4% figure reflects historic worst case measures and commonly is based to a 30 year time period. i.e. in the worst historic case after 30 years of a 4% SWR there was nothing left. But more usually (non worst cases) there was substantial residual portfolio value still remaining at the end of 30 years.
Buffett Paradox: Warren Buffet suggests all stocks for retirees who own their own home and have pensions covering base living expenses, but also suggests to cost average into stocks (save over years), or for lump sums to average-in rather than lump in, to avoid otherwise lumping in at the worst possible time. However buy and hold is no different to the daily cost-less lumping in each and every day.
Many Bogleheads suggest immediately lumping in, as that historically averaged better outcomes than cost-averaging in, but that overlooks the opportunity costs available when averaging in. Sometimes averaging in works out best, other times lumping works out best. Mathematically lumping in has the higher figure overall, but that excludes the option of averaging-in shifting to being all-in after declines. Imagine shortly after lumping in stocks drop 30%, the average-in investor might have only invested 10% and still have 90% cash that might then be lumped in. If the worst case historic 30 year period sustained a 4% SWR then having lumped in 90% at a near 30% discount then the supported worst case SWR rises to around 5.5% (at least conceptually it does).
However in other cases lump in works out best, so one approach might be to 50/50 lump and averaging-in. Start with 33% stock, increase that over years to 66%, and you average 50% stock exposure over those years. Similar reward expectancy as another who maintains 50/50 stock/cash by rebalancing back to 50/50 each year, but where you have less stock exposure in earlier yeas when 'sequence of returns risk' is considered the highest, more stock exposure in later years, but where dips in stock prices in later years is more inclined to just be giving back some of other peoples money (gains) rather than eating into ones own capital base.
If a newly retired starts with 33% stock, averages in another 33% over a number of years to have averaged 50% stock overall then likely they'll do OK. If they reserve the right to go all-in, if/when stock prices dive then having loaded all in at below peak levels they'll also likely do very well. But when to go all-in? That's where AIM automates things for you. Follow all buy trades, ignore all sell trades and sooner or later AIM will have you all-in at reasonable discounted average cost of stock such that the subsequent portfolio rewards are inclined to be good (avoided the worst cases). How can you set AIM to not sell shares? By using Vealies.
Conventional AIM has you both buy and sell shares, add-low/reduce-high type strategy. However it can be significantly better to not sell shares after having bought them at a discount. Start with 33% stock, end at 100% stock guided by AIM and in some cases the overall rewards can be substantially more than a lump-summer.
In addition to Vealies, how do you handle adding more to stocks each year. Well outside of regular AIM you simply increase Portfolio Control by the amount of additional stock value purchased. So if you start with $33K stock value, want to increase that by $3.3K/year for ten years (or whatever inflation adjusted equivalent value), then buying $3.3K of additional stock outside of AIM indicated trades and you increase Portfolio Control by $3.3K.
Just be careful with your emotions if shortly after starting a AIM stock prices crash and you're skipping around celebrating at having gone all-in, as others will think you're crazy. Further continuation of declines may follow to dampen your mood, however mid to longer term you're in a great position. Pretty much destined to do considerably better than average.
If no such dives occur, then broadly having averaged 50/50 stock is still inclined to do OK.
Clive.
VWave 3.0*
Suggested Starting Cash Value For New AIM Accounts/Positions
Individual Stocks
High Risk: At or above 51%
Neutral: Between 37 and 50%
Low Risk: At or below 36%
Diversified Funds
High Risk: At or above 34%
Neutral: Between 25 and 33%
Low Risk: At or below 24%
_________________________
Week of August 19th
_________________________
Short Term (18 Months)
Individual Stocks: 45% (Up 3 from previous week)
Diversified Mutual Funds
or Portfolio: 30% (Up 2 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 45% (Up 2 from previous week)
Diversified Mutual Funds
or Portfolio: 30% (Up 1 from previous week)
Oscillator: .59 (Up 1.35 from previous week)
*See posts #44585 and #44588 for Tom's explanation
Added WPM yesterday and added to HR today.
WPM is 1/6 the of my account and STKL is 1/15 th along with PLUG.
Toofuzzy
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Assistants The Grabber Toofuzzy |
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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