Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Hi, Gujral,
A subgrouping of my list with a net overall dividend yield of 11.2% at current prices consists of:
DHY, EAD, HYF, PHT, RMT, TY, ZF
CEF's rather than ETF's - but to borrow the line from Evita,
And the money kept rolling in from every side...
Best,
AIMster
One thing people don't mention when doing all of these comparisons is that it's all based on knowledge of what has happened, which is way different than knowledge on what is GOING to happen.
Hence the shortage of bona fide working crystal balls. :)
Still the past is all we've got to work on. Such was my similar thought on getting more "automatic" in AIM in the sense of giving AIM a "brain" of a neural network to give it some greater sense of letting it become more aware of what is likely to happen and adapt accordingly. By adapting I mean a more dynamic adjustment of control settings; SAFE and Cash Reserve levels primarily, for example. Might not be doable though. After all there are no guarantees of course, and things come in out of the proverbial left field all the time which can play heck with any sort of prognostications. Though a system should be able to incorporate those and adapt. In theory, at least.
Some pundits will tell you that there's doomsday ahead as the Baby Boomer generation starts to retire and thus starts cashing in the investments they've (or at least the smart ones) accumulated, driving down stock prices in general as there'd be more people potentially selling than buying. Others will say they're moving into dividend based items for the income. So yes, the future is all of a big ?
But, we should use our intelligence and plan accordingly. A prudent investor wouldn't have had 100% of his or her portfolio in just AOL, too much risk in ANY one stock - even Lichello admitted that quite often in the book.
I think you've a wise idea in moving the significant portion of your investments out of individual stocks and into broader CEF's/ETF's and working from there. I've pretty much gone this route myself, having taken a hit on some of the real estate implosions earlier in the year. Stuff happens.
Thanks for adding your thoughts to this interesting stream. All contributions are much appreciated.
Best,
AIMster
Or 5% BUY SAFE and 15% SELL SAFE though like I wrote above I don't understand what the effect of this would be.
Hi, TooFuzzy,
Think of it as controlling a "bias" on share accumulation.
1) Low buy SAFE, High sell SAFE (as you mentioned) means there will be more resistance toward getting a sell than there is a buy. Thus, over a long enough time you'll accumulate more shares, especially if you leave the buy SAFE at 5% in your example.
2) High buy SAFE, low sell SAFE will tend toward selling out, rather than accumulating, as there will be more resistance toward buying than there is selling.
3) EQUAL values for SAFE are # shares neutral, and in effect creates a single SAFE value which brings it back into Lichello's original idea from the book.
Best,
AIMster
Don't belittle that 3% dividend, particularly if the company is able to grow it.
I agree with you - I'm not belittling it at all, rather I'm suggesting that such dividends fund the cash reserve - but this under the direction of AIM as to when to buy, rather than reinvesting them as soon as they're received, which could lead to a plethora of fractional shares. Something else that Lichello despised, and for good reason, at least in the days before tax prep software where one would have to manually populate Schedule D!
So, in my scenario, dividends are received, they accumulate as the cash reserve, earning interest in the money market or whatever sweep system your brokerage uses. Then, when AIM feels that the price on the stock (or value of the portfolio) has gone low enough, then those dividends are reinvested. So even if they're not reinvested right away, they still are earning something, and will be deployed back into the equity side when AIM sees a bargain.
Best,
AIMster
Initially AIM starts with a 50/50 gap between the top and bottom of the hold zone from the start price. When a trade occurs in one direction or the other it follows up with a subsequent hold zone with 1/3rd and 2/3rd (approximate) intervals between the entry level and the next trade in the same and reverse directions respectively.
Thank you! Between you and Grabber you've both done a good job of illustrating the mechanism. Now I understand why Lichello was so insistent on a monthly time interval - since the next trigger point would be reached in far less time, greater sampling rates would likely invoke a hit on the trigger - and on the buying side, burn the cash reserve that much faster.
So, perhaps there is indeed merit in TooFuzzy's idea of incrementing the SAFE in the direction of the trend as different trigger points are hit - this to keep the relative distance between the ends of the hold zone closer apart from where they were originally, instead of letting them hit as quickly as they do in Grabber's table a few messages back.
Maybe it's the relatively frequent buys-or-sells that lead here:
As aim_hier pointed out:
I ran numerous tests of various systems using the Dow Jones Industrial data from 1940. I found a few enhancements that improved AIM, but I really wasn't satisfied with the long term results of AIM.
I too, have noticed where in some of the tables in the book Lichello's $10,000 starting figure doesn't end up with so much after a simulated run of sometimes up to ten years or so. I mean, $13,000 from $10,000 after ten years is laudable, but not enough to retire on. With the recent discussion of WNC yielding only a 3% pa return even the "impressive" gains of AIM at the end of the run, if converted into an annual rate might well only be around 3% - or maybe even less. Whilst they do show advantage over buy-and-hold, once you factor in inflation, 3% pa won't get you too far.
I suppose one idea that might be looked at is 1/2 AIM, especially if one's following aim_hier's idea of holding only dividend paying items. What's 1/2 AIM? Using AIM as a guide to buying, forcing you to do so in those periods when the price has declined, but then never selling, using the dividends to fund future purchases. (or additional investments if one's still in the working world and able to make additional contributions). Since dividend payments are based on the number of shares held, one will, in this methodology, only hold an ever increasing number, purchased at the most opportune times, lowering one's overall average cost. Further, in a taxable account, at least, one avoids taxes as one never realizes gains or losses. Of course it may be prudent to take some gain at some time - I'd hate to give back a 50% gain or so without taking some off the table, for instance, but still, doing nothing may be best in the long term! Anybody have some time and data to see where this plays out?
Best,
AIMster
Yeah. I use Firefox too with no problems like that.
But I've not been able to log in to IHub from there. So this is the only site where I use IE.
FWIW, Opera works fine with Ihub and has a lot of similar features to firefox - also the same low price of free! About the only place I have to use IE is on Microsoft's own sites.
Best,
AIMster
However testing the concept across a set of 10-20 index funds (properly diversified) would require extensive historical data for each asset class which I personally do not have access to.
Hi, Clive,
Not sure how useful it will be for UK based investing, but a book I've got on the line of trading ETF's used the technique of substituting similar sector funds for those periods before the ETF's existed. They seemed to make a reasonable proxy, what with ETF's really starting to come into their own after 2000. David Vomund is the author on this one. His is a momentum based strategy, i.e., moving into the highest ranked ETF's monthly and he's got a website here http://www.etftradingstrategies.com/ that may give you some leads (hopefully without having to spring for the book, unless you'd think it a useful add to your library).
Best,
AIMster
From New York take a right
7 hours later take another right for 20 minutes
And you're nearly there
Somewhere in the
Twilight Zone
Actually, Clive, you're not too far off!
It's about 4.25 hours or so to Syracuse, NY, from New York City, birthplace of Twilight Zone creator Rod Serling. He grew up in Binghamton, NY, around 3 hours from NY City. So, taken together, that's a little over 7 hours!
Born and raised in a Jewish family, he later converted to Unitarian Universalism. Full info on him here:
http://en.wikipedia.org/wiki/Rod_Serling
Best,
AIMster
It sort of becomes a Chicken and Egg thing. Do we design our settings for our holdings or our holdings for our settings? There's a duality to my portfolio in that I hold the industry ETFs and also hold some individual stocks. That duality carries over to the settings I use.
Cluck. Crrraaack - the sound of a nest egg hatching! :)
Interesting posts of late on cash reserve levels, individual vs multiple holdings, etc. And somehow or other I keep wanting to find the connection that illumined Mr. Lichello's "idea" light bulb. Particularly in the context of having "numbers think for themselves."
It seems we can run ourselves ragged looking back into the past and playing "what if". It doesn't seem to be too difficult to see what we should have done to get to some awesome result today. If we only knew. But we don't and we can't. At least without some sort of grandiose feedback loop that would incorporate and adjust for new data on a daily basis.
I don't know how well AI (as in artificial intelligence, not Automatic Investor) software really helps returns. And I can accept the general idea that if it were that easy we'd all be millionaires already and the point of this and other investment boards would be moot. But since we're still out here trying to hew the wood into something useful, such programs obviously haven't taken over the investing world so their use must be limited. Still, there's enough of the perpetual Knight in me to keep on the Quest for the Grail that I have to believe that there's yet a way to incorporate more of "automatic" into Automatic Investment Management such that it would learn as it goes along and tune the parameters with a goal seeking directive for maximum return. Combine AIM with a neural net? I've seen some of these around - most for some goodly cash, though to prevent much in the way of any experimentation. Anybody have any ideas or am I smokin' into the wind? Sigh...
Best,
AIMster
WNC
Well, going back to "day one" does increase the return and the number of shares grows to 2,160 so on the next up move it should start to pay off handsomely. Looking at a chart, though, gives a good view as to why it's "fizzled." Go to bigcharts.com and select "all data" to see this - trying to show the picture in here only shows the current year -drat! Note that a weekly update cycle provided this best return - again somewhat data fitting to the result but for illustrating the point, not altogether un-useful.
Anyway, from the chart we see that it stalled in 2003, went sideways a bit, hitting a peak in 2004 and has been in decline ever since. Thus, the cyclic up and down process that AIM uses has been broken for the last four and a half years. Since that's about 25% of the time, little wonder the cumulative annual return has been forced so low.
What I do see, with 2,160 shares is a lot of potential. The question is when is such potential going to be realized? In the next six months? Or in another four years? Where are the darn crystal balls when we need them? As Lichello said, no one tells you when the peak's been reached. Using our rose-colored 20/20 hindsight glasses, we should have totally sold out at the top of the 2003 run-up and moved to something else that wasn't going to be a dog going forward. But how were you to know? Just proves that investment maxim, past performance is no guarantee of future returns. Unfortunately that holds true for stocks as well as mutual funds.
Let me know if I can help ferret out anything else on this one.
Best,
AIMster
AUTOMATIC INVESTOR HISTORICAL ANALYSIS FOR WNC
======= PERFORMANCE =======
Current Portfolio Value: $14,976.90 (2160 shares owned)
Profit or (Loss): $4,976.90
Simple Return: 50%
Annualized Return: 3%
Buy/Hold Portfolio Value: $6,730.72 (973 shares owned)
Buy/Hold Profit or (Loss): ($3,269.28)
Buy/Hold Simple Return: -33%
Buy/Hold Annualized Return: -2%
Return on Capital at Risk: 148.47%
Average % Capital at Risk: 33.52%
Analysis run on 01-Dec-07
Weekly Price Data Chosen
Filters Used:
Include Buy Advice
Include Sell Advice
Exclude Hold Advice
Average Commission: $0.00
Start of Period: 08-Nov-91
End of Period: 30-Nov-07
High for Period: $37.7100 on 1994-09-13
Low for Period: $3.5400 on 2002-10-09
Initial Number of Shares: 97
Original Share Price: $10.2700
Original Share Price Date: 08-Nov-91
Original Investment: $10,000.00
Last Share Price: $6.9100
Last Share Price Date: 30-Nov-07
Average Cost Per Share: $8.79
Current Cash Reserve: $51.30
Current Shares Owned: 2,160
Current Security Value: $14,925.60
Number of Purchases: 76
Number of Sales: 73
======= CONFIGURATION =======
Buy Resistance: 20%
Sell Resistance: 13%
Initial Cash Reserve: 90%
Margin option is Off
Minimum Purchase: $0.00
Minimum % per Purchase: 5%
Minimum Sale: $0.00
Minimum % per Sale: 2%
Control Increment: 50%
Maximum Cash: 100%
Vealie: 50%
Volumizer option is Off
MACRO Filter is Off
Volume Filter is Off
MattMOD option is Off
Portfolio Control: 19,036
======= STATISTICS =======
Total Number of Records Processed: 807
Total Number of Records Printed: 151
Total Number of Records Skipped: 2
Hi, Ken,
Re:WNC
Now, granted this is data cherry picking likely at it's worst and there's no way in advance that you could have used these parameters from the start as you didn't know that they'd work.. but running this through AI gives these results:
AUTOMATIC INVESTOR HISTORICAL ANALYSIS FOR WNC
======= PERFORMANCE =======
Current Portfolio Value: $13,021.54 (1764 shares owned)
Profit or (Loss): $3,021.54
Simple Return: 30%
Annualized Return: 3%
Buy/Hold Portfolio Value: $2,669.56 (381 shares owned)
Buy/Hold Profit or (Loss): ($7,330.44)
Buy/Hold Simple Return: -73%
Buy/Hold Annualized Return: -12%
Return on Capital at Risk: 77.84%
Average % Capital at Risk: 38.82%
Analysis run on 30-Nov-07
Daily Price Data Chosen
Filters Used:
Include Buy Advice
Include Sell Advice
Exclude Hold Advice
Average Commission: $0.00
Start of Period: 30-Nov-97
End of Period: 30-Nov-07
High for Period: $29.6500 on 2004-09-13
Low for Period: $3.5400 on 2002-10-09
Initial Number of Shares: 38
Original Share Price: $26.2000
Original Share Price Date: 01-Dec-97
Original Investment: $10,000.00
Last Share Price: $6.9600
Last Share Price Date: 29-Nov-07
Average Cost Per Share: $8.48
Current Cash Reserve: $744.10
Current Shares Owned: 1,764
Current Security Value: $12,277.44
Number of Purchases: 86
Number of Sales: 46
======= CONFIGURATION =======
Buy Resistance: 20%
Sell Resistance: 10%
Initial Cash Reserve: 90%
Margin option is Off
Minimum Purchase: $0.00
Minimum % per Purchase: 5%
Minimum Sale: $0.00
Minimum % per Sale: 5%
Control Increment: 50%
Maximum Cash: 100%
Vealie: 50%
Volumizer option is Off
MACRO Filter is Off
Volume Filter is Off
MattMOD option is Off
Portfolio Control: 16,708
======= STATISTICS =======
Total Number of Records Processed: 2499
Total Number of Records Printed: 134
Total Number of Records Skipped: 9
Dallas turf...
From Wikipedia:
Playing surface
The playing surface installed in 1971 officially was labeled Texas Turf, and was a form of AstroTurf; it was replaced by a somewhat softer surface called RealGrass in the middle of the 2002 season.
http://www.realgrass.com/
AIMster
re: Fair Value
Back on 17 April 2000 the term was coming into vogue as this article from CNN/Money talks about with the apropos headline of "Fair Value for Dummies."
http://money.cnn.com/2000/04/17/investing/fairvalue/
Best,
AIMster
Fuzzy re: "I had sold out of this with LD-AIM at $140 and just picked up some shares at $98" Showoff! :)
Just goes to show how TooFuzzy packs some momentum with his AIM!!!! Way to go!!!
Best,
AIMster
>>>>The problem with industry ETFs is that they may miss small cap stocks. Also managed funds should give better returns as long as they are managed well and I'm not convinced ETFs give good returns.<<<You are right about them being cap weighted for the most part so besides owning 10 etfs I own RMT
Hi, Toof,
Ha!! What a hoot! We DO think in similar fashion! I too have RMT for the same reasons to capture the lower cap end of the market, and I was going to mention it to Adam, but I thought, nah, the 1.49% expense ratio is a little "rich" although the 12.28% distribution rate combined with the fact that the shares are selling at a 12.88% discount to the NAV are somewhat redeeming factors!
AIM on!
Best,
AIMster
Re style vs industry. I would think indutry funds would move more out of phase and cause more AIM action. The style funds I think correlate more with the overall market.
Hi, Adam,
I think you're correct. As I pointed out to TF a few messages back comparing a whole portfolio vs individual holdings, a similar broad vs narrow situation exists in market style holdings compared to sectors. Style holdings being closer to a whole portfolio and sectors being more focused.
So, similarly the same issues apply - the more volatile sectors will more efficiently use AIM, but in so doing will become disproportionately larger (if all started from an equal distribution amount). So, at some point, rebalancing will have to occur to bring things back into alignment. Not that would ba a bad problem to have, <grin>, but I just wanted to point it out as a consideration.
Best,
AIMster
he basket idea creates the problem of do you buy your best performing or worst performing stock. That is why I own ETFs (for the diversification) but trade them individually (so I am not buying more of something that has peaked)
Hi, TF,
This seems to be one of the central discussions in AIM, which Lichello even encountered in his book so obviously there are pros and cons to each mode. Given that how one sets it up will to a great extent determine your results or at least activity level, a couple of considerations come to mind fairly quickly:
Whole portfolio:
Lichello's preferred method. Treats investments together as one unit, allowing human intervention to determine what to buy or sell (more of or something new) at each buy or sell signal. Gives one the opportunity to control how whole portfolio is balanced over time.
Drawbacks may be seen in that the cash reserve will be consumed in larger if likely more infrequent chunks. 5% for example of a $50,000 portfolio is larger than 5% of a $5000 holding! Such purchases may be more infrequent as the rising holdings will cancel out the falling ones to some degree. Of course this preserves cash reserve in one sense so it may not be totally bad.
Individual holdings:
Allow the most flexibility as they will all march to the beat of their own drum so to speak. Cash reserve consumption may be in smaller chunks making the overall cash reserve last longer, though such savings may be eliminated due to more holdings triggering more often.
The drawback is that this approach will favor the most volatile items to be triggered the most often. Whilst this is good in that it is using the AIM engine to compound value, over time some rebalancing of one sort or another may be needed to keep the overall assets in the portfolio as a whole to be realigned to one's investment targets.
Obviously everyone needs to use whatever mode (or combination) works best for them, but this does seem to keep coming up in one form or another. There's probably no one single right answer. A combination would be a hybrid somewhere between the two, for example instead of AIMing each individually or as a whole portfolio, one instead creates minibaskets of several items and then AIMs those. Combine related holdings into one virtual holding and AIM that. For instance if one were to own two or three REITs, residential, commercial, (mortgage gulp), put the three of them into one holding and AIM that.
More ideas...
Best,
AIMster
I have been thinking about the cash reserve at start of an AIM ACCOUNT.Some of the funds are at their 52 week low,like CHI and NRI.But some are near their highs.
The question then is Should all funds follow the same Appreciation Potential of the market or should they have something different?
Hi, Gujral,
Welcome to the board and thanks for the excellent question.
A couple of considerations here:
1) if you're AIMing various items together as one portfolio (Lichello's preferred method) then the high and and low end positions would, to some degree cancel each other out so one might want to split the difference. In other words, if you feel the high end holdings might realistically need a 50% cash reserve, but the ones that have come down in price already need say, only a 25% cash reserve, you might want to just split the difference and start with a 38% cash reserve.
2) AIMing each position individually, certainly one wouldn't go wrong using the market recommended level whilst investing in the fairly appreciated holdings, one may get buy with less on those that are at or near new lows.
3) Another thought is that one may reduce the amount of cash reserve initially on those items that have a good dividend return, allowing the dividends to supplement the cash reserve over time. NRI, for example is currently yielding 14.1% or $2.44 per share - not an insignificant amount of additional cash reserve coming in over time.
Hope this helps you sort things out and again, welcome.
Best,
AIMster
A recent problem with the FT100 was that the top handful of stocks out of the 100 accounted for a very large proportion of the total index such that the index of 100 effectively became a reflection of the top few. I can't recall the exact detail offhand but discussions around that time were along the lines of the issues of having the restriction of no more than 10% of the index value allocated to any one individual stock holding.
Hi, Clive,
Similarly there's been a discussion on the S&P 500 which is a market-cap based 500 fund, vs RSP which a fund that uses equal weighting of the same S&P 500 stocks. StockCharts perf charts gives a good comparison of the two, especially if you drag the slider all the way to the beginning to show the total comparison. So, far equal weighting's the winner, by quite a bit.
See:
http://stockcharts.com/charts/performance/perf.html?SPY,rsp
Best,
AIMster
A similar arrangement but on a smaller scale (10 to 15 stocks is a reasonable amount) can be applied when using a AIM managed basket. I was thinking that 20 stocks is a nice minimum number. When you have a sell, you could sell one stock, and when a buy, you can buy 1 new stock(one of Lichello's recommendations). (Assumption that minimum amount is 5%.)
I believe one of Lichello's goals in such a strategy was to have a single tax lot per stock, rather than having to report multiple transactions on the same stock through repetitive buying. Of course, nowadays if a person has one's financials on a computer selecting and reporting individual lots can be easily done with a few clicks of the mouse - doing so only on paper could be far more arduous!
The only problem I see is that if one wishes to keep a constant 20 stocks, such a strategy would then mean that on a buy, one would have to be sold to free up a space for the new stock. Ideally in one's mix of 20 some would be in a profitable place, others at a loss. However, if as in the recent downturn, all one's holdings are in the red, and in such condition is when buy orders are given, do you then buy a 21st. 22nd, 23rd, etc. stock? Or just take a minimum or maximum loss? Not a way to make money, though losses can offset gains up to a point per year, under US tax law. Or is there a piece of this I'm missing? Always possible! <grin>.
Best,
AIMster
Here's a silly "what if" hypothetical question: What if the opposite of a catastrophe occurs and the price of our stock just continues to rise and all we get are sell signals. Isn't it true that at some point, we'll end up completely selling off our entire position? Not a bad situation to be in, but I'm just wondering if that scenario throws a monkey wrench into the system. Or has there already been something put in place within the system that addresses that and calls for adding to that positon at various points?
"Happy Thanksgiving to you and yours as well", he started writing, recovering somewhat from smoked turkey, mashed potatoes, etc... now if I can get the brain to focus here...
There are a couple alternatives here. First would be to let the situation work exactly as you describe, eventually going to 100% cash. Always remember the maxim, "cash is king" and there is no fault in doing so. I believe the LD-AIM (low-down AIM) allows for this possibility.
The other option is to pull a "Vealie," named after Tom, as you might surmise. What this does is to "fake out" the AIM process as if you've had a sale. This allows you to have better control over the level of cash reserve so that it won't become, in your estimation for the given securit(ies) too high. See Tom's website http://www.aim-users.com/aimchng.htm
for a Vealie description as well as an explanation of other AIM 'tweaks.' Note that in the AI software has a control field "maximum cash" that you can optionally use to regulate the cash reserve level before a Vealie would be invoked on a sale. Use of this is optional, but like the Prego sauce, it's in there!
Hope this answers your questions - may we all find such stocks, and soon!
Best,
AIMster
Can an ETF become a deep diver? >>grin<<
This sector fund (ITB Housing) may not go totally to zero but certainly may give a good roller coaster ride which AIM will use to good advantage. Given the ongoing fallout from the mortgage implosion, odds are new houses won't be getting built soon. The chart gives a good story:
So, like the limbo dancers, how low can we go? Of course, one could look at this as perhaps a decent buying opportunity, at least the cost of taking a position right now won't be so much. But I'd think it a reasonably long term before it starts to go back up.
Best,
AIMster
Happy Thanksgiving to all you 'Users'
Likewise to you and yours and everybody else. Seems the market is thinking it's a turkey, though I did get a buy on NCV today at $11.985 and it's closed at $12.30 - so hey - maybe there's a little festive glow around here after all.
Safe travels to one and all as well. Or not. I know 3 cats who are going to be checking out the bird with increasing interest as the day goes on. I'm also reminded of Lichello's turkey analogy in the book "there goes another $2000 drumstick off of the value of B&H" or something like that.
Enjoy.
Best,
AIMster
Well, since then I've put all my accounts under AIM style management ... 401k, Roth, taxable account, and all is well.
And of course, a thank you to all the participants on this board for the wealth of excellent ideas.
Welcome! Glad to have you here. If you've any specific questions or need clarification on any of Lichello's ideas or concepts, you've come to the right place. Feel free to ask, or contribute your own ideas as well. We're a friendly bunch on here.
Best,
AIMster
Apparently nobody wants Wonton Soup and Egg Rolls today as FXI is off 4.7% as I watch.
Hi, Tom,
Could be part of a big dam problem they've got over there. All this growth means energy consumption and they're in between a rock and a hard place using hydropower vs coal. Full NY Times article on the situation here:
http://www.nytimes.com/2007/11/19/world/asia/19dam.html
What's in their fortune, Cookie? Darned if I know but I do know that theirs and ours are more directly linked then Mao ever likely thought possible!
Best,
AIMster
DANG !!! What did I miss???? hehehe
Hi, Hook,
It's a tradition on here to grab each 1,000th message with a grub - and for hitting the mark, Tom sends out nifty prizes, Secret Decoder Rings, AIM thinking caps, all kinds of good stuff. Next one's at 26,000 so be sure and get ready to pounce when we get up there... Put in message #1,000, 2,000 and so on to get the list of all prior winners.
Best,
AIMster
with 2 grubs, so far...
Congrats, MM,
Glad to see you got it - we were in quite a competiton at 24,000! You'll find Tom's goodies to be quite useful. They work for me!
Best,
AIMster
You know, the more I read up on this sh*t the more it seems there's a different strategy for each day of the year. Nonetheless, as they say, knowledge is power, right?
Yes, true enough, but there is a difference between knowledge that you can actually act on then there is being overloaded with so much info you end up frozen, like a deer-in-the-headlights afraid to do anything at all. You can always find as many opinions as there are people to conceive them. You will find technicians and fundamentalists, and those who will simply pick a stock at random. In the end they all might do just as well - or not. The difference being that the first two of the three will likely charge you beaucoup bucks for the wisdom of their divinations.
It's all a crapshoot, really. The biggest decision is finding a plan and then sticking to it. AIM offers that plan. If you don't have the intestinal fortitude for AIM, particularly when it asks for more investment in what seems to be a losing position, it may not work for you. There are plenty of people who follow momentum based investing, using things like CAN-SLIM or Yahoo screeners or services like VectorVest to help ferret out potential winners, letting the profits run and cutting the losses short.
As long as you're willing to work with a system be it AIM or something else, give it some time and see how it plays out. Paper trade the system for a few months, if you'd like, before committing real dollars to see if it does work as advertised. If it does in paper it should be fairly close to the real world. Slippage, commissions, dividends, earned cash interest, etc. likely changing the results to some usually small extent.
Experience, I think will prove the far better teacher in the long run than reading endless tomes of 101 market theories and strategies.
Best,
AIMster
The only thing making me a little nervous this time is the trickle down effect of the sub-prime debacle, the slow-down of the housing industry, and the craziness going on with the cost of a barrel of oil, etc. etc. etc. -- Did I say the "only thing?" I'm not ready yet to jump on my pony and start yelling that the sky is falling, but I think it's wise to be very, very cautions right now.
Hi, Hook,
Welcome to the club! There will always be the cheaters and the cheated, the rich, the poor, the best of times, the worst of times. All at the same time. My point is that there is always risk and it's always the best time to invest - as long as you have a plan like AIM to keep the emotions in check so you can invest systematically and spare the gut the rolaids, the nights of needing Ambien to sleep.
Above all practice due dilligence on whatever you want to invest in. If you want to start cautiously, ETF's are one of the lowest expensed ways to put the toe in the water. And if you start with a really broad-based one such as IYY (iShares total market) or IVV (iShares S&P 500) index funds, you're investing in at least 500 companies right off the bat. Unless the whole economy tanks in one shot, either of those should be around for quite a while. And will give AIM buys and sells, though maybe not with the frequency of individual stocks. But if you make these a "core" part of a portfolio, you can add some more high-flyers later on. That way you won't be betting the whole macadamia orchard on one shot! And the return should give you enough to enjoy the pineapple, at least now and then!
Best,
AIMster
Hi, Neil,
Congrats on the article. The picture gives the appearance of you standing on the top of what might be a cliff or high dune or something, given the low angle. As investing can be likened to jumping off - a good choice in background by the layout people! Of course, AIM acts like bungee cords, so that's a good thing! Who knows - you may get a fanclub started! <grin>.
Again, congratulations!
Best,
AIMster
Hi, Hook,
As I suspected from his website regarding AI licensing:
10. CUSTOMER LICENSE AGREEMENT. Aptus Communications Inc. ("Aptus") thanks you for selecting one of our products for your computer. This is the Automatic Investor Customer License Agreement, which describes Automatic Investor's license terms. - PLEASE READ THIS NOTICE CAREFULLY - DO NOT DOWNLOAD OR USE THE SOFTWARE UNTIL YOU HAVE READ THE LICENSE AGREEMENT. BY ACCEPTING TO DOWNLOAD OR TO USE THIS SOFTWARE, APTUS WILL ASSUME THAT YOU HAVE AGREED TO BE BOUND BY THIS STANDARD AGREEMENT. IF YOU DO NOT ACCEPT THE TERMS OF THIS LICENSE, YOU MUST REMOVE ALL OF THE SOFTWARE FROM YOUR COMPUTER AND DESTROY ANY COPIES OF THE SOFTWARE OR RETURN THE PACKAGE UNUSED TO THE PARTY FROM WHOM YOU RECEIVED IT.
GRANT OF LICENSE. Aptus grants to you and you accept a license to use the programs and related materials ("Software") delivered with this License Agreement. This Software is licensed for use on one computer only. Once the Software is installed on one computer, it may not be uninstalled from that computer and then installed on a different computer except to make one (1) backup copy. The Software should never be installed on the hard drive of more than one computer. If the Software is installed on a network hard drive, access must be restricted to a singularly identified user. You agree that you will not transfer or sublicense these rights. If you use the Software on more than one computer at a time, you must license additional copies or request a multi-user license from Aptus.
Hey, is it ok to put a licensed Automatic Investor on more than one computer?
You'll have to double check with Mark Hing (username aptus) on that. Unless you pay a license fee per computer you want to use it on, generally the answer is no, though some licenses allow multiple computer use as long as both computers can't use the program at the same time. In other words if I have it on my home and work computer, for example, I can't be running the program at work (not that I should be anyway, but this is for an example) and have the Mrs. at home running it on the other computer at the same time. Assuming such would be okay under the license terms in the first place.
The other issue you'd get into would be database synchronization, as you'd end up having to copy the database from the "secondary" to the "primary" computer each time, unless you want to run two different models altogether - one as a whole portfolio (closer to the book) or AIMing each stock individually.
Likely the terms are in the fine print of the EULA, though they may be answered in a FAQ on his website.
Best,
AIMster
Is there a better deal as far as an online brokerage to use than what Ameritrade has?
Jersey Al and I use FOLIOfn ( http://www.foliofn.com ). They're unique in that they offer twice-daily "window" trades and will match up internal orders first before going to the market. In other words if I want to sell 100 IBM and someone else in FOLIOfn wants to buy 100 in the same window period they will fill that order directly. Windows are 11 AM and 2 PM Eastern time - not sure offhand what that works out to in Hawaii. I run my calculations at night and place the order at night so it usually hits the 11 AM window - I may cancel or modify if the market moves too far against me relative to the AIM recommended buy or sell "strike price," but most of the time the general trend that's prompted the transaction advice continues into the next day.
They're different in that window trades up to a certain number per month per membership level are free of commission charges. Plus you can trade fractional shares and a single or all holdings in a "folio" or grouping of stocks according to your preference. They have predefined folios and you can start with one of those, modify it as you wish or go totally from scratch. A single folio can hold from 1 to 50 stocks/funds/etc.
With the fractional shares if AIM tells you to buy, for instance $1232.24 worth of securities, you can do exactly that, or you can trade using shares instead of dollar value. Their basic membership (paid annually) is $199 per year. This gives you 1 folio of up to 50 holdings, and up to 200 free window trades per month. Dividing that cost out = $16.58 per month - so if you make 2 trades per month you're saving relative to the $9.99 you're paying now. Make more than two and it starts to become even more cost effective.
This structure makes them more useful for at least swing or closer to buy-and-hold than for day traders. AIM is in these latter categories depending on the size of the hold zone and what the market's doing so it works ok. They also offer direct to market orders for around $3.95 and other trading options as well. I've just used the window trades, as I'm grandfathered in with an older membership where such market trades would be $14.95 - but the other benefits I get make it worth using.
Not for everyone I realize but a couple of us have found it to be worthwhile and you may want to give it a look, at least.
Best,
AIMster
Ok, now my head is spinning. You guys are making AIM sound like it's not as "automatic" as Lichello made it sound. How much tweaking is actually necessary and did this come from backtesting, real time experience, or some other method of discovery? Once I get invested, I suppose what you're talking about will make more sense to me.
Morning! Lichello notes that "he's a tinkerer" always trying to fine-tune and improve AIM. Imagine the power of multiple people thinking along the same lines! Thus you get All my Children of AIM.
Please understand that first getting acquainted with AIM by-the-book is the best and most excellent place to start. That provides the theoretical underpinnings to most of the AIM variants and permutations/revisions. The book, even with the hokey title is our "bible." That's always the case.
The key to understanding all of this is the historical background. Lichello wrote it on the heels of the 1970-1974 bear market, the worst (up until that time) since the Great Depression of the 1930's. As such, he designed the system to be very conservative, and in that light the by-the-book rules make sense, especially starting from a 50/50 cash/equity perspective. One starting to design such a system in say late 2001 might well design it the same way.
What he couldn't forsee, though at that time was the bull market of the 1990's. As this was going on, AIM was not so efficient, the cash reserve component acting as an anchor, albeit a necessary one on the total return for the period. One would be glad to have such a reserve in the early 2000's though! He himself created the later revisions of AIM-HI, which is a good setting for a protracted bull market.
Lichello's calculations call for a single SAFE value for either buying or selling. One of the first permutations was to create a separate SAFE for buys and sells respectively. Having the two values allows one to bias toward share accumulation (low buy thresholds, high sell) or distribution (low sell thresholds, high buy). It's also perfectly all right to keep them both at the same settings - splitting the two merely affords one the option, to use the phrase, the right, but not the obligation to do so.
Probably most people go by-the-book and the returns from doing so, and the simplicity of doing so will be perfectly all right. There are those of us who keep pushing the edge of the envelope, trying to squeeze that 1 or 2 extra percentage out of it - is it worth it considering the time involved - maybe. But if you want a simple 'set it and forget it' going strictly by-the-book should be fine.
You can probably read about the developments of the various add ons and variations in the history of the postings here or in the FAQ's of Tom's website. And someday, after you've used the system for a while you may find incorporating some or all to be worth doing. Or not.
Best,
AIMster
at one point (the flipping thing).
Let me clarify - in a down trend we increase the buy SAFE by 5% each time - the sell SAFE is at the standard 10/5. By the time the down trend ends, we may well end up with a reading like 25/5 or 35/5, however low it goes. Once the thing turns around and we start getting sell signals, we increase the sell SAFE by 5% each time, making a larger gain. As we've now switched from buying to selling, I reset the buy SAFE back to the standard 10/5. If it starts going down again I start increasing the buy SAFE by 5%, resetting the sell side to the standard 10/5. In other words each directional change forces the opposite side to start at the by-the-book settings, only increasing as the direction of the trend, as that trend, either up-or-down continues.
If we didn't do the reversal, when we shifted back from the sell trend to the buy trend we'd start the buy at the extreme 25/5 or 35/5 - one could, but I'd rather start from the book setting and increment it again as the trend continues.
Does this make more sense?
AIMster
I find I myself have too many small accounts and I am buying and selling $1000 to $1500 at a time. I wonder if it makes any sense in terms of record keeping and trading costs and of course time.
Hi, TF,
All a question of balance I think. I believe you're using the #2 pencil approach, as I recall, and you also mentioned that you're AIMing each holding by itself. That would end up with a fair bit of time consumption and manual calculation. That's where the software like AI and PCA come in - push one button with the mouse and wait for the recommendations to come in as they're calculated. Activity has picked up of late on the buying side especially. As for size and cost, well, that depends, of course. Jersey Al and I don't pay per trade commissions with "window" trades with FOLIOfn, so cost is only for the level of membership one has, unless one opts for non-window trades which can run extra. Even then, with AIM calling the shots there can be rather quiet months with no trading, as you know.
I follow your practice of increasing the buy SAFE by 5% with each buy to put a damper on cash reserve consumption, hmmm, a topic we haven't really given Hook too much tutoring on yet.
So, if you'll allow the 'aside' in your reply...
The big 'enemy' of AIM is exhausted cash reserve. Once you've gone through the cash reserve, you're in the same position as a buy-and-hold investor, 100% committed to the market and 100% at risk from that point onward. And whilst AIM works largely as a closed-loop system, i.e., shuttling money from a given starting point between equities and cash reserve as the market dictates, one can, from time-to-time add additional monies. Or another place to augment incoming cash is with dividend paying holdings.
Common strategies to slow the cash reserve 'burn rate' are to, as I mentioned. increase the buy-side SAFE by 5% each time you buy. That increases the size of the "hold zone" - forcing you to make the next purchase at a significantly deeper discount than the last one. This will also serve to lower your average cost more quickly as the gap between successive purchases will be larger. One can also presumably follow the same strategy for the sell-side SAFE, resetting the buy side to the "default" 10/5 (10% SAFE/5% min trans size) at the first sell and reverse it for the sell side on the next buy. In other words we're forcing AIM to ride the trend either up or down at a more deliberated pace, instead of using a fixed SAFE value.
The other common strategy is to follow Lichello's idea of monthly polling for data and space the buys or sells at minimum one month intervals. Being truly conservative if not totally stingy might be to follow both practices. That should stretch the cash reserve out for a long time. of course you don't want to get to the point where you've dampened the signals for AIM so much that you're not doing anything either. as I mentioned to Toof, it's a question of balance...
Best,
AIMster
You can be totally diversified with five funds. Buy all five and rebalance at most once per year and be done with it. How is that for simplicity?
GAB large cap (or SPY or IVV or IVE)
RMT micro cap (or IWM or IWN)
EFA foreign
ICF REITS (there are two other ETF REIT funds so pick your poison)
CHI high yield bonds (or chy, hyb, msd)
Simplicity, yes. And commendably so. But risky? Maybe. I mean, if you start with an equal weighting of each holding, that's 20% of the portfolio value you're committing to each single position. Adding another 5, whether over time or in the initial configuration might well give more diversification and less risk at a starting value of 10% of the portfolio per position. Some suggestions:
EEM iShares Emerging markets or EMF (Templeton's flavor)
DBC PowerShares commodities
DBV Powershares currencies
SGL - Stategic Global Income (9.1% dividend yield)
IYH or IYE Healthcare or energy sector plays
I suppose if one has time we could run these through riskgrades and see how close to the efficient frontier we get. Perhaps a weekend project. Stay tuned.
Best,
AIMster
Hi, Hook,
Stock selection. Good place to start. Some general pointers:
1) Stocks can and will become worthless, think Enron, WorldCom or more recently New Century Financial (subprime mortgages), so quality is an important consideration.
2) AIM is a contrarian system and has you increase your investment as the market deems that particular holding to be more and more worthless. This is an antithesis to the momentum folk who advise "cut losses short and let profits run". One needs a measure of intestinal fortitude and a reasonable belief that what goes down will indeed go back up again. That's why Lichello recommended blue chips for a good part of the portfolio.
3) in light of 1 and 2, one should not follow AIM blindly, but one can, under the rules get out of a holding and swap to something with more potential. For instance I salvaged a pittance from New Century so it wasn't a total loss, but it wasn't much better than that. Hey, it happens.
4) For better sleeping at night one may reasonably AIM funds, either mutual, closed-end or ETF. The lower expenses of ETF's in particular make them appealing. They might not give the same measure of volatility capture that Tom mentioned, but they do have their movements, nonetheless and will move with less risk of totally imploding as individual stocks can. ETF's offer a variety of choices, both domestic and international (region or specific country), as well as style large, mid, small caps and value, growth or blend. You can also do sectors which may be more volatile, and some of the newer Powershares get into such realms as currencies and commodities.
In terms of how many to hold - that's to some degree a measure of how much you have to invest. Don't want so many as to be difficult to manage or to be spread too thin, after all you want to start with some reasonable cash reserve right now. You can always add more later.
Gotta go so may add more later or no doubt we'll all chime in as more questions make themselves manifest!
Best,
AIMster
Mornin' Hook,
Regarding PCA vs Automatic Investor. I'm a user of the latter, have been for about 2+ years now so I can speak to that software. Unless the developers of PCA want to send me a copy so I can do a comparison (hint, hint <GRIN>) I didn't really see a need to go and buy both.
AI is $197, PCA $279 - not a lot of cost difference, but still some, if you're on a tight budget. AI offers a trial version that you can download and run - in fact, you need to do that first - what you purchase is a registration key that allows the software to run after the trial period. You will need an active internet connection, though - as the software does "phone home" to a remote server to validate the license. Normally not a problem, but if the server can't be reached the software thinks it's not registered if you're past the trial period. This happened the weekend before Halloween, but that's the first instance in all the time I've used it that there was a multiple-day outage, so in general, not a problem. Mark Hing, the author, is responsive to getting issues like that fixed promptly. He's also added more features as time's gone on so the program is now quite robust.
AI offers a lot of customizations in line with all the add-ons to the basic AIM process that have been mentioned in detail on Tom's website. It can also be configured to run various by-the-book(s) mode as well, from Lichello's original 50/50 to his later AIM-HI. 80/20. As Grabber pointed out, one big feature I believe common to both softwares is the ability to backtest. What's useful is the automatic ROCAR calculation - that's Return On Average Capital At Risk - with AIM you're usually running an investment at far less risk than the buy-and-hold 100% risk. You can configure the software to follow Lichello's all-the-stocks-in-one-portfolio model or AIM each individually.
Before I turn this post into too much of a commercial endorsement(!) let me end this by suggesting that you visit both websites and read, kicking the tires of both, so to speak. If another user on here uses PCA and would post to the benefits of that software, that would make this a more fair and balanced board - the rest of us report, you decide. Can't get more foxxy than that!
see:
http://www.automaticinvestor.com
http://www.stocksystem.com/
Also an AI discussion board:
http://investorshub.advfn.com/boards/board.asp?board_id=1172
Welcome to our group!
Best,
AIMster
Or maybe to be contrarian it is.
Go to Yahoo screener
Only screen for estimated one year and five year earning growth > 0
How many choices did it give you?
HINT: It returned ZERO companies for me!
Hi, TF,
I suspect it's more of a data problem. I reversed it too after getting the same results you did and did <=99999 - still nada. I also tried >=.01 - same thing.
I'll check it again in the next day or so - if it persists... hmmmm indeed! Narf!
Best,
AIMster