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For those that have 'won the game' ... have enough, then IMO there's a lot to be said for thirds each home, stocks. gold
Your shelter is covered, no rent to be found/paid to others, perhaps where the imputed rent benefit is 3.3%/year value, 1.1% proportioned to total wealth. Dow/Gold and the Dow might throw off a 3.3% dividend, another 1.1% proportioned to total wealth. If from the Dow price only/gold 50/50 you draw a 1.66% SWR, that's another 1.1% of total wealth benefit. Combined 3.3% effective SWR - that when measured over the typical 30 year period = return of your inflation adjusted money via regular income, sourced from imputed rent, stock dividends, SWR, holding two-thirds of the assets in-hand (land (home) and gold), and where the other third can be liquidated in T+2 time (stocks), diversified across land, stock, commodity assets and where as a Brit GBP (home), USD (stocks), gold (global non fiat commodity currency). Historically that has tended to end the 30 years with your inflation adjusted start date wealth still intact, often more, so you both had the return of your money, via installments, and ended with your money ... have cake and eat it (https://en.wikipedia.org/wiki/You_can%27t_have_your_cake_and_eat_it)
Hi Tom
As per that 50/50 Dow/Gold example combined stock and gold make a good form of 'cash'
If you AIM'd cash, as in T-Bills, inflation adjusted value
where stock/gold was that AIM's 'cash', then there was enough volatility over time for AIM to have triggered some trades, but in a slow/progressive type manner.
AIM tends to trigger more sells than buys, so during that (poorly compressed/resized image taken from https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=3fqTTtRsACmPzhrurnRA8y ) 1980 to 1999 rise it would have been repeatedly selling T-Bills to add to stock/gold ... a form of momentum stance. And where over those years typically the interest paid on T-Bills declined from double digit type levels right down to low single digit levels. That's a complete opposite to more usual AIM that is anti-momentum, buys more as prices decline, reduces as prices rise.
From 2000, like the mid/late 1970's it would have been selling T-Bills to add to stock/gold (AIM CASH)
Not the best of choices, but a outside-of-box mind direct. It could be beneficial to have a momentum based AIM alongside anti-momentum AIM(s) as a diversifier.
Perhaps a better example is if you compare 50/50 stock/cash with 75/25 stock/gold ... i.e. as though 50/50 stock/gold were held instead of cash (T-Bills). PV indicates that comparison to have had the latter exhibiting a 2.9% or so higher CAGR https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=1Ort6gg4puv9lsmluN4YFB
Similarly comparing 50/50 stock/gold with cash https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=13OlRmhaOaPNXkom8hXlzC saw a near 6% higher CAGR for stock/gold.
AIM can at times hold significant amounts of 'cash'. If/when that cash yields a higher return then obviously so also does the overall portfolio rewards reflect that.
Regards.
Clive.
Hi Clive, Re: Gold...............
I've always used a gold surrogate like IAU or GLD as its own AIM engine. I've never really considered using it as the "cash" side of an entire AIM portfolio. Since IAU and GLD are easily traded these days, they could possibly be used as a cash substitute. I have my IRA history that I could use as a model of reasonable length to see how it works. Gold seems to march to its own drumbeat from casual observation. So, testing it against a portfolio of known performance could prove instructive.
I've read of your blended cash substitute many times here but have never really studied it all by itself. When cash interest rates are 'above' the measured inflation rate I see less potential for the "gold cash" substitution. However, for most of the New Millennium interest on cash has been below inflation and therefore, as you stated, has suffered a loss of purchasing power. When AIM's cash side is low, that loss is smaller, but is still there. When AIM's cash content is higher the loss in purchasing power is greater.
Thanks for stirring up my neurons this AM.
Best wishes,
OAG Tom
50/50 yearly rebalanced Dow/Precious Metals, price only growth was reasonable, so on top of additional dividends draw some of those gains and generally that was a reasonable baseline. Add AIM on top, AIM the Dow, where gold is the 'cash', scaling up stock exposure after stock declines, reducing stock exposure at highs and that broadly added a further 2.5% AIM 'dividend' on top.
Hi Tom
Re: AIM and Gold.....................................
What's the appropriate level of Cash to hold in an AIM Engine designed around Gold?
Looking back at the last 25 years we see gold has had drawdowns of at least 20% six times. Some of those drawdowns were in the 30% to 50% range. Thinking of how the Buy side of AIM works, with relatively standard settings one would need a 30% to 50% cash reserve near peaks to be able to buy with AIM signals all the way down these slides.
I don't feel the v-Wave or the MRI relate to gold, so letting AIM seek its own level of cash might be best. But, if you still like the idea of capping max cash, you could use 'vealies' at some cash percentage. Maybe 30%, 40% or 50% would keep this engine in tune and offer some comfort.
https://schrts.co/vBHtcIGj
Note the "Accumulation" pressure on IAU since around the start of 2020 (bottom of graph image). This might be symptomatic of the last 4 year's inflation. IAU shares rose roughly 50% over that time frame.
Holding 50% IAU (no yield) and 50% MMFs (5% yield) would render an approximate annual yield of 2.5% for the entire engine while idling. So, maybe a cap at 50% cash (then vealies) would make some sense.
Best wishes,
OAG
Hi MIJ..
The oscillator is the difference between the 26 week moving average and the current long term stock number which was 47.538 and the 26 week moving average was 48.082. Subtract the moving average from this week’s number for stocks and you get -.54. So this past week, the data for the short term ( 18 months and relatively new compared to the long term (3-5 years) v-Wave are from Value Line. A while back Tom felt there was enough data points to start using it. So he did! Thankfully!
Hope this helps.
Jon
Another spreadsheet similar to the S&P500 real price one, except for the Dow real price since 1915, using actual month end values and CPI from FRED. Shiller's S&P500 data uses month average figures instead of month end (doesn't make much difference to the overall AIM).
https://drive.google.com/file/d/1AVEZsCY5Sa2ZDP0Ko-q-u4trrpJF6UFk/view?usp=sharing
Hi Toofuzzy
Sorry missed your post. Better late than never.
Hi MakeItJake
First you need to define what 'it' is :)
This is a libreoffice .ods version of AIMBare https://drive.google.com/file/d/1PqTRsZ-7PKgJR80QjCx7Bn0aB-rl3jbg/view?usp=sharing loaded with Robert Shiller's monthly S&P500 real share price since 1871, that is AIM'd and the year end AIM %CASH is reflected once/year into your actual portfolio. If AIM CASH is negative assume 0% cash for the real world portfolio. i.e. rebalance actual portfolio once/year, directed by AIM.
Standard 10% SAFE, 5% of shares minimum trade size AIM settings
Using that AIM's year end stock/cash indicated level to rebalance your portfolio to I then used Simba's spreadsheet to obtain yearly stock total return (I selected Simba's yearly Large Cap Blend stock total returns data as I believe that is based on S&P500 total returns), T-Bill and Inflation values and applied the AIM directed year start %cash (stock/cash blend) to those to identify each years 'actual' portfolio total return. Using T-Bill yearly returns for 'cash' is conservative, when you rebalance once/year you might lock cash into a one year term contract likely for a better rate than what T-Bills paid.
For IH loading of images hover over the top right IH icon, just right of the email icon and open the My Image Gallery choice where images can be uploaded to. I saved some images out of that spreadsheet, edited them to reduce the color scale (make them a smaller filesize) and then uploaded them to IH and use its COPY option to copy the Embeded image code to insert into posts
Those measures reflect actual type outcomes and are indicative of how AIM directed portfolios (once/year rebalanced into alignment with AIM of S&P500 real price) achieved around the same total return as all-stock (log linear regression slopes), but did so with around 40% average cash, and had a superior 30 year SWR than all-stock (that at times was less than 4%)
That's all pretty much standard AIM, the only difference being to use real instead of nominal share price, and to align your actual portfolio to the AIM directed level once/year rather than trading each and every AIM indicated trade. So is nothing particularly new, is still just AIM.
I note improvements if you instead applied the exact same measure (AIM of S&P500 real price) but applied to a actual portfolio that held mid cap blend stocks instead of the S&P500, as were rewards improved if you used gold for CASH (T-Bills pre 1933 when gold was money, and deposited money earned interest, silver from 1933 to 1975 when investment gold was banned in the US, gold from 1976). With that the SWR rose more to 5% type levels and total returns > S&P500 total returns. As can rewards have been improved by tweaking settings. But that's all a form of potential cheating, selectively identifying what worked better in the past to yield a better result. Fundamentally standard AIM applied in the above standard manner (10% SAFE, 5% MTS, monthly reviews ...etc.) worked well, yielded similar total returns to all-stock, but did so with a decent chunk of average cash, tended to add-low/reduce-high etc. all automatically, as is written on the tin. Using different SAFE, MTS, adjusting PC in a different manner - is just more inclined to be what they call data mining, changing things so that things worked better in the past, but that may very well not see those improvements also continuing to work in the future.
What is SWR = safe withdrawal rate, i.e. the initial percentage of the start date portfolio value that could have been drawn/spent in the first year, and where that $$$ amount is uplifted by inflation and drawn for spending in subsequent year. SWR measures are typically made over a 30 year period i.e. a generation (or typical 65 - 95 age type retirement period). So like a inflation uplifted annuity but where you retain control of the capital/value. The reported SWR figure is the single 30 year case that had the worst outcome i.e. in the worst case 30 year period since 1870's for the above you could have applied a 4.5% SWR with 100% success rate, but in that worst case ended with no portfolio value remaining after 30 years, all-spent. Average (all other) cases and some portfolio value would have remained, often more in real (after inflation) terms than what you started the 30 years with.
As a compliment (or alternative) to the vWave I'd suggest a simple current S&P500 / prior months CPI index value as the 'real S&P500 input price to that AIM style as that makes it very simple to manage the AIM (given that CPI is a late reported figure). Using the one month lagged CPI broadly made no difference to outcomes. Rebalancing your actual portfolio value once/year also opens up potentially improving returns on 'cash' as well as simplifying tax reporting.
Overall AIM was superior to just 100% stock buy and hold. Broadly provided the same total returns, but better supported SWR (higher SWR), and held a decent amount on average in cash that might have be 'worked' to improve upon rewards.
Clive.
Hi Clive,
I was thinking of a hybrid approach. Portfolio control increased by CPI each month and run in the normal way when purchases occur.
I perceive that this would lead to better returns. But really don't know.
Will
I’m thinking of replacing the VWave in my AIM spreadsheets with Clive’s AIM-derived cash percentage. (Clive – what would you like to call it? You should be the one to name it…)
Apologies in advance ; this is a long post.
Background (recaps why it’s useful to have a suggested percentage of cash that tracks the market somehow ; can be skipped)
Left to its own devices, in a rising market AIM sometimes accumulates more cash than (in retrospect) it turns out to ideally have needed, and in a falling market it sometimes suggests too-frequent buys and so runs out of cash while the market continues lower. Tom Veale put forward some modifications to Mr. Lichello’s original AIM that act as dampers on these tendencies – the “Vealie” adjusts PC so as to defer a sale when there’s already sufficient cash on hand, for example. So … how much cash is sufficient?
We’ve been using the VWave (another of Tom’s innovations) to provide suggested values for cash as a percentage of an AIM portfolio. Now, ideally, low cash levels would be suggested at times when stocks represent good value and we expect higher stock prices in the future. Higher cash levels, conversely, would be suggested when we think stock prices aren’t going to rise much further for awhile, or may even fall. In the simplest terms, an ideal suggestion-box would say “buy” near market lows and “sell” near highs.
So it seems worth asking how effective the VWave has been at helping us buy from the scared when stocks are underpriced and likely to rise, and sell to the greedy when they’re overpriced and likely to stagnate or fall.
I’ve mentioned once or twice that while the VWave is pretty good at this, I’ve noticed that it’s better at suggesting we invest when prices are relatively low than it is at reminding us to sell more when they’re relatively high. Clive’s recent series of messages centered on the results he has seen in testing an AIM-derived suggested cash percentage made me think it would be useful to compare the two. After comparing them, as I said up top, I’m thinking of replacing the VWave with Clive’s AIM-derived cash percentage.
Here’s why.
First, a graph of both the VWave and Clive’s suggested cash percentage, shown in relation to the S&P 500 from 1985 to the present. I feel silly, but I can't figure out how to upload it directly to iHub, so I hope this link will bring it up. For clarity, the green line is the VWave (as a percentage value) and the blue line is Clive’s suggested cash percentage, graphed against a bar chart of the S&P (log scale). (Please note that these are taken from my attempt to replicate Clive’s work, so any mistakes are entirely mine.)
Neither one was entirely successful at capturing the ideal outlined above. The VWave (in green) was falling (suggesting investing more in stocks) while stocks were nearing a peak in the late 1990s / early 2000s, although it clearly showed when stocks went on sale during the global financial crisis and to some extent when COVID hit in early 2020. For its part, the AIM-derived suggested cash percentage (in blue) rose in the late ‘90s, building cash reserves, but continued rising even while the S&P had started to fall. Like the VWave it suggested buying with both hands during the global financial crisis (it went all the way to zero cash), but it more or less ignored the COVID impact on stock prices … so, a bit of a mixed performance for both.
Partly because the graph didn’t show either one as clearly better than the other at emulating the ideal, I decided to also look at the percentage change of stock prices (using the same S&P data) as “forward returns” – that is, for each month, a future S&P value divided by the current month’s value. I looked at the forward returns for 6, 9, 12, 18, and 24 months. (The values are in multiplier form – to convert them to percentages, just subtract 1 from each … as an example, the 6M overall average figure converts to 0.05, or 5%. Also, please be aware that they aren’t annualized.)
6M 9M 12M 18M 24M
Overall avg 1.050 1.075 1.101 1.151 1.203
Zero – 30
Cash % 1.074 1.108 1.139 1.196 1.257
Vwave 1.057 1.088 1.111 1.168 1.209
40 – 60
Cash % 1.052 1.081 1.112 1.166 1.226
Vwave 1.055 1.081 1.116 1.191 1.268
70 – 100
Cash % 1.024 1.036 1.048 1.087 1.119
Vwave 1.038 1.057 1.076 1.100 1.144
Highest 10%
Cash % 0.973 0.951 0.913 0.857 0.834
Vwave 1.062 1.086 1.068 1.071 1.107
Lowest 10%
Cash % 1.112 1.155 1.198 1.285 1.362
Vwave 1.078 1.118 1.156 1.217 1.273
Hi MakeItJake
For real price AIM I have a column for the share price (S&P500 index value for instance), another column for the CPI index, such as the data from FRED https://fred.stlouisfed.org/series/CPIAUCSL, and the actual AIM real price which is the S&P500 index / CPI index value. As CPI is a lagging report I've resorted to using the prior months CPI index figure, as I'm not seeing much if any differences in results in doing it that way and it means you don't have to guess and then later revisit each months values.
For PC to be updated by inflation I just take the prior PC, multiply that by the most recent CPI index value, divide by the prior months CPI index value. I also set PC to otherwise remain unchanged, no adding half of any stock value added.
Leaving PC to be updated in the regular AIM like manner (half of any stock values added) is however better IMO. Has more of a feedback loop factor.
If you just align actual portfolio to monthly updated AIM indicated cash levels once/year then you can lower SAFE and minimum trade size settings, the higher frequency of trades don't actually cost anything, they're just traded on paper. 0% BUY SAFE, 10% SELL SAFE, 0% Minimum Trade Size will have the paper AIM trade a lot more, but seems to better align a appropriate year end %CASH value to actually align your real portfolio to, i.e. better aligns PC. For UK MidCap AIM for instance that yielded a higher reward, with lower drawdowns, average around 30% cash but went all-in at reasonable times, had relatively good levels of cash at market highs.
Regards.
Clive
Hi Clive - I've been following your logic in my own spreadsheet (that's usually the way I learn best). My calculations using a CPI adjusted price series match your results closely. However, when I tried, in a second spreadsheet, to understand adjusting Portfolio Control for inflation (rather than the price series itself) I fell into error. I'm clearly doing something incorrectly ... but I haven't stumbled on what my error is yet.
Can I ask you for more details about the adjustments to PC ?
If this would be better tackled offline, that's fine -- here's a burner email address that'll reach me ; I'll reply with my "real" one. (I'll have to turn the burner off if/when it starts to gather spam, though) : MIJ (at) CAJOANNON (dot) ANONADDY (dot) COM .
I wrote earlier that this was a very interesting concept. As I read through your subsequent posts, and worked through my spreadsheet, I only appreciated it more. Thanks again for sharing the idea. Truly very much appreciated.
With kind regards,
MakeItJake
Many thanks, as always, JDerb. Much appreciated!
By the way -- I posted some questions about the Oscillator and the short-term VWave a few days ago in # 47192. Just wanted to bump them up on the radar, in case you and/or Tom had missed them. (Clive started a very interesting series of posts at about that time, and it would be no surprise if they drew your attention the way they drew mine -- if you haven't already checked them out, you probably will have the same reaction I had ... they start with # 47194.)
If the questions I had would be better tackled offline, that's fine -- not sure if you still have my email address, but here's a burner email address that'll reach me. (I'll have to turn it off if/when it starts to gather spam, though) : MIJ (at) CAJOANNON (dot) ANONADDY (dot) COM .
v-WAVE 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 23rd
_________________________
Short Term (18 Months)
Individual Stocks: 55% (Down 2 from previous week)
Diversified Mutual Funds or Portfolio: 37% (Down 1 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 48% (Unchanged from previous week)
Diversified Mutual Funds
or Portfolio: 32% (Unchanged from previous week)
Oscillator: -0.54 (Up .05 from previous week)
*See posts #44585 and #44588
After a period of time, AIM’s Portfolio Control (PC) updates of initially being set to the initial stock purchased value and thereafter increased by half of any subsequent stock purchase values … learns … is a form of AI, a cog in the AIM machine. Once settled by a period of time after the initial starting of a AIM we observed a -0.65 inverse correlation of PC / CPI compared to S&P index / CPI monthly measures.
Assume a simple stock model of stock index price tending to offset inflation, dividends paid out on top. If that were not the case then share prices that consistently ran ahead of inflation would be destined to become unaffordable. If share prices consistently lagged inflation they’d be destined to become excessively cheap. Economic cycles however result in deviations around a nice progressive inflation pacing price increase rate and at times stock prices might be relatively high, or low.
If PC were only updated by CPI then in real terms it would be a linear line. PC as-is fluctuates. PC is the ‘central’ value around which AIM opts to trade. If you buy in at a relative high then expecting the same inflation pacing return as if you bought in at a low is …. unreasonable. The standard manner in which AIM updates has PC learn and adjusts for that.
If after starting your stock value rises in real terms at a fair lick, above average, you bought in at a relative low, then PC increase rate is inclined to be relatively lowered (inverse correlation). If after starting your stock value rises relatively slowly in real terms then PC is inclined to be increased. In effect AIM is saying that if you bought in at a low then your ‘central’ line around which AIM trades should be raised, likely/perhaps to faster than inflation. Similarly if you bought in at a relative high then it directs you towards a central line that may lag inflation. A reasonable reflection of what investments might generally encounter, buy in at a high and rewards are inclined to be relatively lower than if you bought in at a low.
Robert Lichello called it the Automatic Investment Management … in the modern day it might alternatively be called a Artificial Intelligence Machine :)
Hi Investor Will
That really is impressive. Very simple to operate and excellent returns. Out of interest have you included any interest revenue from the cash balances?
Will
Hi Investor Will
Would increasing the Portfolio Control by the monthly CPI figure return similar results?
Hi Tom, I've always been interested in how people deal with deep divers. My method has been as follows. With each successive buys I increase my Buy Safe by 5%. That leaves a too large hold zone so I start using negative Sell Safe to keep my hold zone constant, usually around 30% for an individual stock. The spreadsheet works fine with negative Buy Safes. That at least keeps the AIM machine active and it does not lock up on huge hold zone. As the stock recovers I move my Buy and Sell Safes up by +5% keeping my holding zone to 30%.
Another method I've used in the past on a declined security is to look at the Cost Basis which Schwab lists in my Positions view. AIM has this tendency over time to keep increasing the PC/share around which the algorithm trades. The Cost Basis tends to be much lower, so reset my spreadsheet with PC/share equal to the Cost Basis. That puts new life into the AIM machine and still generates profit compared to the Cost Basis.
Adam
Hi Clive, Re: Growth vs Value ratio.....................
This image shows the Vanguard Growth ETF divided by their Value ETF. Up until last week's stumble, Growth had been growing faster than Value so the ratio was climbing. That hiccough last week created a quick reversal but didn't last the whole week.
Is there more to come in this shift? Or was that just a bit of fanny spittle?
Best wishes,
OAG Tom
Hi Steve
Hello all.
My GTC Sell on PLTR triggered today.@ $31.20.
LIFO gain of 37%.
Sold 14 % of Actual shares; 9% of the program shares, Actual + Virtual.
The GIF is pretty dramatic!
One wonders if use of Tom's 'Halfway to the Wall' approach might have faired, everything else being equal.
New version of the spreadsheet just uploaded, extended to include SWR measures and a toggle to either have AIM CASH set to zero whenever it goes negative, or leave it as is.
BJ7 and Z20 are the only two cells you might like to change and all of the charts/data should update to reflect those changes
I only use margin/leverage as a direct alternative to 1x. Need $5K of cash - so sell $10K of 1x stock (SPY), buy $5K of 2x stock (SSO) and you've borrowed from the portfolio at a effective cost of the overnight rate of interest. Or as a means to reduce counter party risk, $100K in 2x, $100K in cash instead of $200K in 1x stock.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=u21mslG1Ajv3VTukTjnD1
Hi Clive, Re: Negative Cash Reserve occurring periodically.......................
After years (Decades) of marveling AIM's ability to buy from those willing to let their fears push them to liquidating positions with poor timing, I've daydreamed of letting AIM have access to Margin buying. I'd consider this only with well diversified holdings, not individual company stocks where other risks can occur.
Since AIM taps the Cash Well dry only when there's been a significant decline in the markets it would seem to be an ideal time to "borrow" some money in the form of margin buying. I've NEVER used Margin and abhor debt in general. That doesn't prevent me from day dreaming about such action. Since AIM also gets back to selling shares based upon its deepest and lowest share purchase price, it seems reasonable to assume AIM will close out that Margin position with a reasonable LIFO gain as markets recover. As your histories show, Margin expense could continue for years, however. That's why I've never done it. I'd need an alternate source of income to cover the margin expense for that ugly time.
As an alternative, I have used my Black Swan Sale with deep divers and markets. When the cash runs dry, I use the last purchase price and divide it by 0.80. That gives me the "Next Sell Price" target. It's maybe lower than the AIM directed Next Sell, but it would generate a reasonable LIFO gain. So, maybe the markets bump along at or near these new bottom prices for a while. If the price would rise to the Black Swan target, I sell the appropriate shares. Now there's at least some cash on hand. I re-use that previous low purchase price as the "Next Buy Price" target. Should the dead cat continue to bounce for a while, I might see that cash recycled into buying back those shares. Once again I'd use that Black Swan Sell target and slip in a GTC Limit Order. I've had two or three round trips with such activity in the past.
Once the first Black Swan Sale has occurred, I revert to AIM to get the next Sale target. Sometimes that new target is quite a bit higher than the Black Swan price/share. In time, if the markets recover, AIM gets back to normal activity and the Black Swan trades are history. This method allows us to at least keep our pencils sharp during market bottoming processes. I'll take a more detailed look at your spreadsheet history and see if those long stretches of zero cash might have been able to turn some profitable LIFO gains with the BSS idea.
Best wishes,
OAG Tom
For that spreadsheet I linked to I'd like to point out that there are two options for how paper-AIM negative cash might be handled. As-is, column Z, "New Parameters for CASH $$$" is permitted to go negative, takes longer to return to being positive again, requiring more sales to do so. So our yearly lookup of the AIM cash and seeing it negative, opting for 0% cash for our actual portfolio, stays all-in for longer, potentially a decade or more.
The other option is to set that column Z value to zero if negative, in which case the first sale trade will have the AIM showing some cash again, and our yearly actual portfolio review will reflect that.
With the latter you may be selling some shares at a loss, and the tendency is to average a higher overall weighing in cash. As a guide I measured the differences for 1871 onward paper-AIM and noted the following
With setting column Z as-is, letting cash go negative the broad average cash = 24% average, 26% median, compared to 38% average, 43% median when column Z was set to zero if it was negative.
Total return wise, the lower average cash yielded a 7.1% annualized, compared to 6.75% (compared to 6.57% for 100% S&P500).
From a 30 year SWR perspective the worst case of 4.78% when column Z was left as-is, in contrast saw a 5.1% worst case for when column Z values were set to zero if negative. Whilst the worst case was better, the average 30 year SWR was lower, 7.1% versus 7.5%
So as a 'executive summary', the spreadsheet as-is is more aggressive, when a deep stock decline occurs its AIM-CASH moves negative, is all-in stock, and it takes longer for that to see paper-AIM cash reserves level return to being positive, 100% stock all-in, maybe for a decade or more, that is also reflected into the real world portfolio. In turn that averages less overall cash weighting - which increased the overall average rewards (higher annualized) but at the cost of more volatility and a slightly lower 30 year SWR (4.78% versus 5.1%). On average total, median/typical case, it was around 0.4% annualised more rewarding.
From a personal perspective I prefer the higher SWR, slightly less rewarding choice i.e. to set column Z cash to zero if its negative, acceptance of maybe selling some shares at a loss as sales trades occur. For me the higher/better worst case SWR (5.1% instead of 4.78%) has the greater appeal. Average (median) case outcome of 0.4%/year less when the rewards are generally good anyway, is a acceptable 'cost' (missed opportunity). More so considering that I'd be more comfortable in not having perhaps a decade or more of time at 100% all in stock levels (AIM down after a deep dive, waiting for price recovery before any cash was again made available).
Somewhat like preferring a 58/42 average stock/cash blend to that of a 74/26 blend, based on data since 1871.
To modify the spreadsheet so as to set AIM cash to zero if it moves negative change cell Z29
from
=IF(B29<>"",IF(W29<>"",E29-X29,E29),"")
to
=IF(B29<>"",IF(W29<>"",IF(E29-X29<0,0,E29-X29),IF(E29<0,0,E29)),"")
and then copy that cell and paste that into all cells from Z30 downwards.
Thanks for sharing, Clive. Always wise to occasionally check long term programs as reminders. Now I can!
Take care.
Jon
Hi MakeItJake
Conceptually stock prices should broadly advance with inflation + growth/productivity (science/technology), such as a single man in a machine farming a field that previously took a army of workers to harvest. With dividends on top. The UK FT All Share has broadly flat lined in those terms. A characteristic of the US is that in the mid 1980's changes to taxation policies promoted more of earnings being retained, so since then US stock prices have advanced at a faster rate, whilst dividends are lower. AIM of real price makes the swings around that more visible, whilst incrementing PC after each buy trade broadly keeps it central. With nominal prices things are more opaque - for instance is a 8% a good or poor return ... is subjective, in a year of 2% inflation = OK, in a year of 10% inflation = poor.
AIM of real share price tends to be more like in the book, zigzags both up and down around a central level. AIM of nominal prices - tends to lead to cash accumulation, might see a initial 50/50 stock/cash end up at 33/67 stock/cash.
Trading every AIM indicated trade will either see the trend continue, in which case having deferred the trade would have been better, or reverse, in which case the trade timing was good. 50/50 probabilities such that accumulating all AIM trades across the year to make one big trade (rebalance event) once/year - broadly washes. Tracking a major index reduces the risk of a deep dive and stays down or even failure event. Many assume AIM is best fed high volatility holdings and it can works those well, but it can also work well as a slow-AIM as I believe TooFuzzy calls it. AIM is fractal, works at both the small and large scale. One of its greatest attributes is how it directs you to actually trade in a rewarding manner, where otherwise if left to ones own devices often individuals do the complete opposite (buy high, capitulate low).
Best wishes
Clive
Very interesting series of posts, Clive - many thanks.
I've had the sense for awhile that using the VWave for a suggested cash percentage for AIM portfolios "works" fairly well when stock prices are near their lows (with some exceptions -- for example, 2000Q2 and Q3), but doesn't do as well at suggesting higher cash reserves when stock prices are high. It looks to me as if your innovation in these posts may provide better suggestions. I'll be exploring it further ... again, many thanks.
With kind regards,
-- MakeItJake
1971 was when I started investing in stocks (Nifty Fifty Era). I was fresh out of college and had only two nickels to rub together, but invested what I could, when I could. Those first few years were more Dollar Cost Averaging than anything and all those $$$ showed essentially no gain for a very long time. Through being stubborn, I kept putting more $$$ into those stocks and eventually my holdings started to look better.
So, your chart and the spreadsheet have extra meaning for me!
Best wishes,
OAG Tom
Googledrive Excel 2007 spreadsheet of AIMbare loaded with AIM of S&P500 real price data since 1969
https://docs.google.com/spreadsheets/d/1EOmOJFEeB8IUUeym49T9rBwiqO0jMycM/edit?usp=sharing&ouid=105608103757702247061&rtpof=true&sd=true
Hi Tom
I see similar mid/longer term outcomes when AIM is applied in the same manner for UK midcaps (small cap in US scale), and World index/funds, similar rewards to all-stock but with 40% or so average cash being longer term typical. Easier to manage also, 12 monthly paper-AIM reviews/year, maybe even all updated at the same sitting, and align actual portfolio weights to that once/year.
I have a AIM calculator to aid that, just need to store PC, #S, AIM-CASH and look up the current S&P500 index and CPI figures (whatever) in order to perform the calculation.
AIM performs a exceptional job of having you heavily/all in at lows, profit taking at highs.
The high cash-cow element is great, provides capital for where if you better cash you bolster overall portfolio rewards. My last couple of positions had me go heavily in (long) just 20 minutes before the General Election news was called by the Prime Minister, lousy timing and took 7 weeks to recover. The subsequent week I made around $13K in a quick in/out position, a world stock/silver blend that had good value (high gold/silver ratio and the world stock fund was at a 9% discount to NAV i.e. positions I wouldn't have minded holding mid/longer term). More than covered medical care/treatment costs for 100+ seborrheic keratosis removal that I've been meaning to have removed since pre-Covid days. Still in (cosmetic) recovery, looking (and feeling) like I paint-balled at a nudest colony :)
You shouldn't be thanking me as is all us others that should be thanking you for all your efforts and sharing over the decades.
Thanks Tom
Clive
Good day Clive, Re: AIM Performance against a broad index...................
AIM's performance compared to the S&P 500 (inflation adjusted?) and used as a cash cow is quite good. Consider that most professional money managers at mutual funds don't achieve equity with the index makes the AIM results all the more pronounced. Many investors talk of beating the "market" as a goal. Considering how hard it is to just match the market, they may be setting their goal too high. Matching the S&P Index with significantly less principle at risk seems to be a quite satisfactory achievement.
One of the reasons I came up with the R.O.C.A.R. idea (Return On average Capital at Risk) was to highlight AIM's risk adjusted return over time. In your example, to have achieved near parity with the S&P 500 Index over decades while having only around 60% of the average risk exposure seems a far better outcome than essentially all mutual funds. Fund managers might achieve better returns once in a while, but there aren't any that have been consistently that good. And, they've had to risk essentially all the capital to achieve their infrequent successful outcomes.
Thanks again for highlighting AIM's strengths over time.
Best wishes,
OAG Tom
Good day MS44, Re: Robert Lichello's AIM Book availability....................
The book is available in electronic form from Amazon.com for their Kindle readers. Other than that, you'll have to find a used copy.
I've used AIM and his Twinvest since January of 1988. There are others here who've used AIM even longer.
Best wishes,
OAG Tom
Hi Tom
Hello there. I am just learning about AIM and heard about this book. Do you where I can buy a copy (Professional Investment Coach by Joseph Ngu)?
I'm puzzled about the VWave oscillator calculations (and about the short-term VWave).
I went back over the VWave update posts to fill in the oscillator data, which I hadn't been capturing until now. I thought I understood how the oscillator values were being calculated, and my calculated values were fairly close to the posted values until December 2018. (Fairly close, meaning my calculated value was usually at most 0.01 higher or lower than the posted value for the week.)
Since that point, though, it's become obvious that I'm making some sort of mistake(s) -- my calculated values are usually off. Sometimes they're way off (e.g., the posted value might be -2.79 when my spreadsheet calculation gave it as -11.51).
So ... can I ask exactly how the oscillator is calculated? (For instance, if it uses a 26-week simple moving average of the VWave up to, say, October 31, 2015, and then a 39-week exponential moving average, it would be great to have that level of detail.) I'm guessing that it uses the VWave 2.0 / 2.1 data until VWave 3 started being used ; is that more or less on track?
Along the same lines, I have no idea how the short-term VWave is calculated, but I'd really like to know. When I do my once-a-week check of the VL data, I can usually plug the ST VWave value correctly, but it's just guesswork, not a calculation.
By the way, if this is something that would be better addressed off-line (I know folks' eyes sometimes glaze over when the talk turns to numbers -- not sure if that'd happen here but in other forums I've occasionally seen it), here's a burner email address that'll reach my actual email. (I'll turn it off if/when it starts to gather spam, though) : MIJ (at) CAJOANNON (dot) ANONADDY (dot) COM
Many thanks! Truly, much appreciated.
-- MakeItJake
Aha! Not only am I a late riser, I'm in a western time-zone. Got up to find that the OAG had long since done the needful! Thanks, Tom and JDerb!
Safe Travels!!
OAG
Thanks, Tom! Perfect.
Take care.
Jon
v-WAVE 3.0* (While JD is playing hookie!)
Week of August 9th
_________________________
Short Term (18 Months)
Individual Stocks: 57% (Down 8 points from previous week)
Diversified Mutual Funds or Portfolio: 38% (Down 5 from previous week)
__________________________
Long Term (3-5 Years)
Individual Stocks: 48% (Down 1 from previous week)
Diversified Mutual Funds
or Portfolio: 32% (Down 1 from previous week)
Oscillator: -0.59 (Down 2.75 from previous week)
----------------------------------------------------------------------
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%
*See posts #44585 and #44588
-------------------------------------------
Best wishes,
OAG Tom
MIJ….
Most certainly. Thanks. I’ll post the usual Tuesday afternoon.
Take care.
Jon
If it would be helpful I would be happy to post preliminary VWave figures. I"m fairly confident they're correct. However, I don't directly track the oscillator, so can't post that.
Best,
MakeItJake
Please Note:
I'm on the road and transferred data to the cloud so I could post. Some of the data does not look right.
Back to the excel spreadsheet. I will post sometime Tuesday afternoon. Sorry about that.
Take care.
Jon
Hi again Tom.
1 New Program MTW (Also Wisconsin based)
As it happens, I had my first AIM Buy on MTW after hours yesterday.
Added 60% to my actual shares, 11% to the program's shares.
@ $9.20, it was 23% below my initial purchase price of $12 exactly 4 months ago.
Note:
I don't do GTC Buy orders and Schwab's Price Alerts aren't working (apparently).
Because I thought I had one in there for $10.25, which was my first Buy target for the new program.
It worked out to my favor this time, but it kind of ticks me off!
Also:
Last week during the market meltdown, PLTR dropped to a low of $21.23.
My next Buy price was $23.00.
Never got the alert at $23.00, so missed the Buy.
Yesterday at around 2:00 PM, PLTR hit a high of $30.32.
Missed having a 40+% gain!
I have to get the alert thing worked out!
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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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