is retired now but still kicking like a horse!
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Toof,
<
If you bought properly and the EQUITY side yields on average 4% (on investment not current value) and 6% from the FIXED INCOME side then selling should not be needed for income.
The AIM directed selling can then just gradually reduce cost basis and increase EQUITY on an absolute basis and gradually increase income from dividends. >
You are addressing an Investment situation that may well be an option for many people that are retiring but does not relate specifically to my asymmetric Retirement AIM Model that is intended to "spit" out extra "spending money" above Pension Income.
With setting the Selling Aggression higher that the Buying Aggression it is a simple Retirement AIM.
What you are suggesting does not appear to have anything to do with my AIM Retirement Machine . . .it does not include buying property. . .although any retired person that want to buy property should do so. . .he pr she could also buy a small aeroplane , or a sail boat!
You motioned "Fixed Income Side" . . .I have not dealt with a Fixed Income in my discussion. . .apart from a regular Pension which is used for the basics of living.
I suppose you are suggesting that some one could do better than using a Retirement AIM as I have suggested. . .one that slowly runs down to 0 towards The Pearly Gate. . .Taking a Pile of money through the Pearly Gate is No Option
Spend the money while you can
On Retirement AIM-Clive
<60% to 95% equities is a massive risk to take in retirement IMO Conrad.
Ben Graham advocated 50-50 stock/bonds.>
Clive, perhaps I was not quite clear on that. I did not mean stock/bond distribution but Equity - Cash Distribution at the Start-up of the AIM Machine. In previous discussions and 80% Equity position at the start was mentioned and under certain conditions I agree with that. For example if an equity is chosen and at the entry point is at a Dip Recovery that, depending on how secure I judged the stock I would not hesitate to allocate 60% to 95 % if the available money to equity and in that regards I have not any particular position on the distribution to stock and fund and/or bonds . . .I suspect now that what you mean by "bond's" is perhaps "cash" stashed away at high interest rate.
Should one step in at the Top of a Trading Range I would start with 60 % to 95 % Cash.
These starting points would then reflect a similar case as having started at the Midpoint of the Trading Range with a much lower equity position
If one steps in at a Dip at 90% equity then this reflects more or less and Optimised Parameter set that invest most of the cash towards the bottom allowing some leeway for dropping price to the bottom limit and still have a bit cash left . . .If one starts with $ 100000 the at the 95% Entry there is still $ 5000 left to go. Instead of using the 95 % a cautious investor would use say 60% equity at the bottom of the trading range.
If the equity collapses at that point then than is bad luck . . .but THAT is no different than starting at 50% at the Midpoint and then buying towards 0 Cash at Bottom and then the stock collapses. . The same bad luck.
I do understand the point of using 50% of the available capital locked-up in an high yield Money Account . . . If the stock crashes and does not recover one still has money to buy butter and bread . . However that does not only apply for a Retirement AIM. . . it applies to anyone that is a conservative investor.
My idea of a Retirement AIM is to start it at 60 or 65, and then, an investor that can set up a Retirement AIM is in any case covered in most cases with a basic Pension Plan already. Assuming that and NOT starting a Retirement AIM to accumulate Extra Value for using it at age 90 the idea is to start taking out money monthly on the average, so most of the "money" should be kept on the equity-side at the Midpoint, so the average earnings are optimised . . .using the general experience that equity has higher yield that a money account.
Any wisdom that can add to these basics of How I would structure the AIM into a predominantly Selling Mode rather that an Accumulation Mode is of course always welcome for an investor with an Retirement AIM like I have in mind.
With the rest of you mathematical analysis you present I have no bone to pick on. . .it is your bone J . . It goes too deep for me to grasp it for now. . .Perhaps the essence of what you mean with the math could possibly improve the Vortex Retirement AIM Concept I have outlined. . . and that is essentially creating an AIM Equity Algorithm that predominantly sells equity periodically. . .(that need not be regularly on a monthly basis, just on the average). . . and less frequent buys new equity at price dips to capture extra yield at those opportunities by “beefing up” the equity base so that the average yield is optimised for the intended retirement period.
Hi Toofuzzy,
<In 2003 and 2009 my account was cut in half even though I was diversified>
What a Bummer! This can indeed go wrong for the best ones!. . .Crashes are by nature unmanagealble. We see that during earth quakes and tsunamies. . . people expect te be helped but many fall between wall and ship and suffer.
In that sense a Crash of market prices of a stock going to zero is different than simply experiencing a Dip. I am very conservative with my own money now. . I can not affort to losse big amounts so I simply Play with small amounts now and then. . . small enough that I can affort to loose it.
For example I Aimed Antonov Transmissions. . . A Penny Stock and it recently was taken off the exchange. . .the value stood as € 130 (sic) . . The stock will remain hanging around and it might betaken back or it might vanish. . . Generally with my Vortex Investing in the past I did quite well. The thing that killed me fianacially was thrusting "friend". . In the end I was chaeate out of % 50000. .you mat have read my story on that. . I am reluctant to trust people again.
On the Penny Stocks I am AIMing a Demo Port Folio with 8 stocks left in it on the Dutch Local Exchabes. . .Antonov was in it but I have removed it from the Portfolio. Each stocj is AIMed seprately but they are lumped in "Mutual Fund" portfolio. The Aiming is done more or less as I would normally do except that I use the Turbo Method. . .put in extra cash when it is needed. Of course I know this is not typicalfor most AImers but I do it to score a point on a Mutial Fund Portfolio about which I know nothing about the details of the stocks other than that they are penny Stocks and can go Bust, like Antonov did.
The "Fund" has been running since Feb-16-2012 till now. I strated with Antonov and added 8 stocks over a short time and recently removes Antonov The Dmo Antonov was much bigger that the Real one I had The paremeters have been mostly constant at the firts choices:
Fund Yield ROTAC (bases on time average capital inlay)= 314 % yr.
Fund Yield ROTAI (base on time averaged equity Buys)= **** % Off the Chart . Perhaps I can find the % in the Fund Report:
From extracted data in the Reportthe ROTAI = 1373,15 % yr for the 20 month period.
Three Stocks have negative yiels of - 0,07/-14,4/-22,7 % Thr est hight positive Yields the rest 30,6/78,5/****/**** %. There were not enough digits allocated for these **** percentages.
Trading cost = € 7875
Interest earned = € 32406
Of course this is not realistic. . I use it as a tool to get a feel of the mechanisms but it shows also what we know generally already. . .a Mutual Fund with a wide base will not likely disappear. . unless you let a guy like Bernie Madoff run the show .
Anyhow: What is TLT ?
It is clear, you have had enough exprience to form a valid opinion on the ups and downd on AIM Investing, so have I. I have lost very few accounts and have spend enough time looking at the traps that there are but also at the methods that give good results. . it takes time to do what I do, and I am fundamentally a more agressive investor as you appear to be. . when I have money to play with that is.
The most important thing is Risk Avoidance and that does not mean avoiding high Yield Stocks. . .it means understanding the dangers and to avoid them.
Thanks for the feed back.
Recently I have held private and public discussions, some at their request, in regards to Vortex AIM parameter optimisation , back testing and Basic AIM modifications that would result in
Residual Buy = 0
Inconsideration of all these aspects I have re-examined the Vortex AIM Program and come to the conclusion that it really is a rather simple matter to modify Vortex AIM to become fully identical in its operation to AIM BASIC and provides the extras to build in some extra Buy & Sell Aggression. . . or Buy & Sell Tempering if you might call it.
This Adapted Vortex AIM Basic Program would provide the following benefits:
1 With the Default Settings it operates 100% identical ro AIM Basic
2 By setting 5 parameters, including the Cash/Equity Ratio, the program the program can be set to operate with PC2 = V. This then removes the Residual Buy--àBuy is 0 after a trade. In this case a question has risen:
IF PC=V is used for a Buy will the Buy Advice for the next Buy @ dropping price be of the same value as in the case that the Residual Buy is carries along (as usual) and the PC is updated (as usual) . ..It seems to me NO,! The next Buy will be somewhat lower because of the lower PC. If the usual Buy is excited then the next buy will be proportionally lower by a small amount.. This is in my opinion a Bonus for the AIM operation. . .The smaller next Buy is tantamount to applying the BRAKE on the AIM Buying and reduces the Cash Burn Rate J something all AIMers seem to want to so for the case that the price keeps dropping. . .to keep the Reserve last longer.
This of course has a drawback too. If at a Point of Recovery there is still a Reserve present an AIMER wants to invest extra money on the first Buying after the recovery. It would then be handy to invest extra Cash then for the case the Recovery continues.
Suppose an investor uses a Delay Method and the at the right time wants to do all the buying he might want to invest all the money that is equal to the Sum of the Standard Buy Signals up to the Recovery Point Price. If this feature is desired then that that can easily be programmed into the Buy Function of the Vortex AIM Basic, even to the point that the Buy Advise Function uses the Regular AIM PC Up-Date and the next executed buy is the Total of all the Buy Advises. . This means that :behind the scenes the Regular PC-Update +PC1 + 0,5*Buy will be used and that simply only the Residual Buy is set to zero, but the Standard Buy Function remains as it is now. . . This way the Next Buy will be as in standard AIM. This will in fact simply means that the Cash Burn Rate is not reduced but that only the Buy = 0 is given after a Buy and the price has not changed.
A Piece of Cake
3 In the same way that in Vortex the trading aggression is built in to the Advise Algorithm so it is in the AIM Basic via the Safe values.. . .With a high Safes the trading is tempered and with small and negative Safes the trading is accelerated(aggressive). In this sense Vortex is no different that the Lichello AIM.
4 Wit a Vortex Aim Basic you can do Parameter Optimisation using the Yahoo downloaded Stock Prices in the Vortex Data Base. We already have the Vortex AIM Optimiser functioning. . . (not yet on the Order Form) . . . and with some modification we can provide an English Optimiser for the Vortex AIM Basic.
The advantage is then that you have a fully standard Lichello AIM including the Asymmetry between the buying and the selling, as is characteristic for AIM.
5 Including in Vortex is a comprehensive Financial Administration System Inclusing
5.1 Multiple Bank Account for each Portfolio;
5.2 Reporting in MS Word for Portfolio Details with all the financials for tax purposes, costs, dividends, interest earned, and yields etc. In each Report the Investor can add comments on What he has done on any day and Why;
5.3 Activity Report in MS Word. . .Al the buys are detailed and trading cost for the trade are listed;
5.4 Reports are automatically saved in your computer outside of the Program itself. The Program makes a new Report each time without retaining the previous Reports.
5.5 There is an extensive Help Program;
5.6 The prices down-loaded from Yahoo. . .currently US Stocks in US $ and European Stocks in €. . . .Prices that are down-loaded include prices of all stocks you want to look at without investing in it. . .You van look at the charts without setting up an AIM Portfolio for it. The charts are of 3 types: Prices of eqtiies/Value of Funds/Value of Portfolios;
5.7 All the financials can be expressed in US $ or in €. . . and changed from one to the other at the flick of a Button;
5.8 The Main Screen shows the individual Equity details AND the entire Portfolio with N equities in them. . .the number of equities N and the number of portfolio M that can be accommodated depend on the computer memory size;
5.9 In a Portfolio you can mix Equities listed in UD$ and in €. .there is conversion subroutine that automatically converts the prices to the appropriate currency of the portfolio;
5.10 The Vortex Program is Bi-lingual for English and Dutch.
Any AIM investors that would be interested in a Windows Vortex AIM Basic like described above please let me know on the Vortex Aiming Board . . I do not want to clutter the AIM User Bulletin Board for this.
Questions are welcome.
Regards,
Toofuzzy,
You have made a claim as a generality without supporting the this is generally happening!
<If you have a security that stays relatively flat or just on a mild projectory and optimize for that, if the security then crashes, you have not allowed for enough cash>
When people are investing. . . with or without AIMing. . . equities do not generally "Crash" routinely. . .It is just the other way around. . .equity crashes are rare. No matter what you do when an equity crashes suddenly and deeply then there is something wrong and in most case the best thing is to Bail Out.
The case in which an equity is FLAT you better not invest in it at all. Let talk reality for AIMing
1 The equity must be volatile
2 The equity must be relatively safe so the likelihood for a crash is very low.
Lets take the perfect example for an AIM Equity such as a Saw Tooth or Sine Wave profile:
3 Such an theoretical equity optimises identically irregardless you start at the top or at the bottom. The optimised point are obvious at the top and the bottom of the Trading Range:
a. At the bottom 100% Equity
b. At the top 100% Reserve
You do not even need any optimisation. .it is a trivial case.
If the stock crashes at the top. . . @ 100 In the Money. . .to a point deeply below the bottom only a fool would invest any further and will wait what happens. If he stock drops to the normal bottom of the Trading Range there is generally no reason to assume it will crash so you go in 100% In the Equity. . .so far so good. . .that is what you want.
Should at that point the equity drop a little lower then there is no panic. .usually it will rebound. . .If you have chosen am equity that is regarded SAFE by any standard then you wait for the rebound OR better yet, buy extra equity from other resources that you have. . .Only a fool will put ALL his savings in an investment unless he had magical power to see that he will not lose it. . .people with magical power would be fools anyway if they us a system like AIM . . .Buying extra equity when the Reserve stand at 0 is an excellent investment method. With Vortex I call it Vortex TurboVest!
Anyway if an equity crashes deeply then something is very wrong and one should bail out. I there is only a drop beyond the normal bottom then waiting is advised. . A rebound usually occurs
There is nothing to worry about. If the stock has crashed and remains a penny stock or becomes worthless de money is lost anyway. The case you refer to would be a rarity and is therefore not relevant.
It is better, in such a case to run 10 years with an Optimised AIM than to play safe and use non-performing parameters. If one is scared for a 1 in a hundred cases that an Equity does not recover from a DEEP DIP then he should his money in a bank account and do gardening all day long.
In case a real stock does not at all follow the price behaviour that was used for the optimisation then the parameters should be changes anyway in a manner that is best for the occasion.
This type of AIM investing requires spending time on it .
The type of AIMing you advocate . . .with all sorts of conservative settings and looking at the market one per month. . . is fine too, for people that have no time to spend on their AIMing not to studying how to get an optimised yield.
Playing 100% Safe is a legitimate Life Style. . I am not arguing against that. . .It is a choice. . I grant you that.
Using one’s skill to Play the Stock Market with an optimised AIM, and to endeavour to maximize investment yield that way, is another choice
Retirement AIM:
In regards to AIMing specifically for Retirement purpose I have explained that in my book The Vortex Method and on this Forum as well. I call that application Vortex RAIM.
A Refresher on it is found on the AIM Users Forum:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=91934703.
Daisy42: Ref. Retirement AIM.
Over the many years on this Forum the subject has "surfaced" frequently although perhaps not exhaustively. I have also looked at the issue and have devised my own method on the following:
1 A Retirement AIM. . . RAIM. . . should have a large enough stating capital to provide a good monthly income. . . I see it as an alternative to keeping the money it in the bank. The RAIM should have say a minimum of $ 100000 which is very roughly $ 700/month if that capital is banked at ~ 3%/yr and after 15 years the account is then empty. When invested in an RAIM the monthly yield would on the average be probably close to $ 1000 per month. The assumption is that one has some other type of pension so that a withdrawal of $1000/m is not a hard requirement and the investor can go for periods without drawing on the RAIM and even execute the indicated Buys @ price dips;
2 The RAIM should preferably be executed with a Portfolio in which a number of stocks are aimed individually rather than as a lumped "mutual fund” . . .This captures the volatility of each fund optimally;
3 The way I have discussed this in my book "The Vortex Method" is as follows:
i. Just like as is advised on this Forum the Equity allocation should be on the high side . . .between 60 and 95 %, depending on the market condition. This is a very individual thing and is related to the skill of the investor in regards to thinking what is going to happen;
ii. Considering that the perspective is to extract money on the average the Sell Aggression of the Trade Advisor should be on the high side and the Buy Aggression should be low side.
This will result in a generally taking out more money out of the AIM than is put into it . . . on the average the number of shares in the Equity Base should drop . . . ideally the RAIM equity should be targetted to be depleted towards the end of the allocated ~15 year Retirement period (if started at about 65 years of age).
In Vortex AIM this is very easily achieved by setting the Hold Zones and Aggression Factors simply as follow at the start of the RAIM:
Buy HZ = 12-15 %
Sell HZ = 8 - 5 %
Buy Aggression = fb = 0,4
Sell Aggression = fs - 0,6
This is a good start as an Asymmetric AIM that "leans" towards Equity Depletion. As the time goes on the behaviour of the market and the specific and the specific stocks will dictate if the parameters need to be adjusted.
In Standard AIM, which functions generally the similar as Vortex AIM, this can be achieved using similar Holding Zones and Asymmetric Safes. For example:
Buy Safe = Sb = 0,3
Sell Safe = Ss = -0,1
These Safe settings actually reduces the buying aggression and increases the selling aggression in the same way as this happened in Vortex AIM. In this it is even possible to combine this with a variable PC Update factor:
PC2 = PC1 + x* Buy. . But the Effect of this has on the Standard AIM I have not investigated in detail.
If x > 0,5 then this generally increases the Buying Aggression but it delays the first Sell after a price Rebound because of the elevated PC, which is good if the rebound continues but bad if the rebound is limited in magnitude. At the same time it increases the Sell Magnitude after a delayed Sell Advice. This is good for the RAIM. . Perhaps this variation of the PC-Update Factor in Standard AIM is studied exhaustively by others, I feel unqualified to make hard conclusions on it.
With x < 0,5 this results in a lower PC-value and accelerates the selling after a Rebound in price but reduces the Sell magnitude. . this appears not good for the RAIM.
Considering these aspects it appears to me that x > 0,5 favours Retirement AIMing for high volatility equities and x < 0,5 is better for low volatility equities. . . If I am wrong on this please explain.
Hi Too Fuzzy,
You are addressing a well known issue that has been discussed in general many times. Your argument is quite valid but it does not fully apply to my post you are reacting to.
First let me state that the term "Back Testing" appears to be used in two different ways on the AIM Forum and no doubt I have not always been consistent as I used it too in a way it is probably not meant.
In various posts Back Testing with AIM appears simply to be Running of a set of historical stock prices with a standard parameter set and perhaps a run with another favourite parameter set suggested by others as being good too, and to compare the results with the Buy & Hold Results or to compare the AIM results with the results of another type of programme. . .This was, I believe the type of Back testing that was discussed lately by Ganaraska.
I have exclusively directed my self to the Optimisation of a historical Dataset and to use that Dataset for an actual Investment run. It is clear to all that have participated ion these discussions that these optimised parameters would only be useful if the future data was approximately repetition of the historical Dataset. I have had many discussion with Mark Hing of A.I. on the issue. There is no disagreement on the weak part of Optimisation. Mark and I discussed a method that was potentially useful:
1 Start with optimisation using historical data;
2 Run the real AIM with approximately the optimised data but temper the aggression factors of Vortex somewhat;
3 Run the AIM for say 6 months or so to see how the trend develops, if the Price behaviour is drastically different then the optimised parameters will not be effective;
4 Redo the optimisation after removing a 6 months data at the back-end of the old DataSet and optimise to the current date. This would reset the Parameters with historical data shifted to the latest date. . .Then wait 6 month again and if required repeat the optimisation.
In case the stock behaviour remains “on “ target” then the result will be close to the optimum. . . if not then you keep re-optimising.
In SPY1, using Windows Vortex AIM I had already started on 03-01-2011 using parameters from some manual optimisation of the Historical Dataset Long before that and I AIMed SPY1 for about 8 @ 9 months without changing any parameters. In the mean time we had started developed our Optimisation Program and started trials some times in 2012. Up In 2011 I still used the manual Optimisation method with the Vortex Excel Spread sheet and on that basis I modified the parameters based on a re-optimisation. All the Demo investment were made in Vortex Windows with parameter optimisation done with historical data in Excel. This was exactly the method developed by me in discussion with Mark Hing advice on the generalities that he had already developed himself for AI.
At the end of 2102 and for 2013 I repeated the optimisations about two times but these times with rather short historical periods. This is so because in Vortex I only had downloaded Spy prices since May 2011 and our Optimisation Program can only take prices out of the Vortex Windows Data Bank. So for the Spy1 Run the result are based on optimisations using historical data and the decision that a new optimisation was needed was an Overlay Management Decision. . this is something any Investment manger must do.
IN [b[SPY2 and SPY3 I used a different approach and altered the parameters 2 times. . .beyond what was indicated by the Optimisation Program ( Manager Interference) after the start-up, giving 3 parameter sets for a ~ 2,7 year Run.
This provides some extra information in regards to what I am doing. Most of the content was directed to present our Optimisation program and that I had started using it and that if anyone would be interested they could acquire a copy when they are using Vortex. It is of course clear that the short period I used for the Machine Optimisations that my numerical results may not be demonstrably indicative of a very high yield.
The Vortex SPY ROTAC Yields since January 2011 to now, that lie in the range of 10 to 12 % annually, may well be very similar to the results people on the AIM USER Forum have been getting. It is interesting to know what other AIM Investors have scored with their aim for the same period.
Hi Vortex AIM users and Forum Readers:
We have developed a Vortex AIM Parameter Optimisation program called Vortex Back Test . . .VBT . . . to be coupled onto the Vortex AIM Windows program (Vortex). This is the way it works:
1 Select an Equity: The Data Base of Vortex is used for loading up the stock prices into VBT. These prices were previously downloaded from Yahoo by the Vortex Investor. . .his choice. These stock prices are not necessarily all used in Vortex but are there to be used as the investor sees fit;
2 The investor opens the VBT Module and selects an Equity;
3 The Period for the Test Rub is selected,
4 The parameters for the Test Run are entered:
*Number of Shares
*Percentage Reserve
* Trading Cost: Fixed Min. + Percentage IF Min. Amount is exceeded;
5 Holding Zones %
* Buy: Start Value/Step size/Stop Value
* Sell: Start Value/Step size/Stop Value
6 Aggression Factor Fractions
* Buy: Start Value/Step size/Stop Value
* Sell: Start Value/Step size/Stop Value
Additionally various buttons are presented for:
* Run Results. . .It present the % ROTAC Yield for each Data Set in Chart form as well as in a List Form
* Sow File. . .Equity Details
* Make Test File. . .Make your own Test Data
* Example Test File. . .Here you can choose a number of standard equity rice profiles for a chosen period, such as: Sine Wave, Block Wave, Saw Tooth Wave and Random Prices.
The Back Test program optimises the 4 Parameter settings based on Yield Maximization.
**************************************************************************
At the moment I am Running 3 SPY Demo Portfolios using generally the optimised parameters as given by this program. In some cases intermediate Optimisation Runs are done for shorted periods in the Past and the parameters adjusted. The idea here is that is a trend deviates from the previously optimised Price History then a new optimisation of more recent price developments is required.
SPY1 is a long term Demo starting at 03-01-2011 till to date. There are 94 Datasets. Latest transaction on August 5
Equity + cash to start = 20000
Equity = 5600
Interest on Reserve = 2% Compounded at each Trade
Reserve = 14389,05. . . .Trading cost of 10,95 already deducted.
Shares N= 44,08. . .N could simply be truncated for integer ..values but are not in this run.
Buy Holding Zone = 7,5 %
Sell Holding Zone = 19 % till August 2012
***************************************
Buy Holding Zone = 7,0 %
Sell Holding Zone = 7,0 % till September 15-2012
**************************************
Buy Holding Zone = 5,5 %
Sell Holding Zone = 10 % till current date
Percentage Interest on Reserve =
Remark:
The changes in Holding Zone settings were based on the development at the time. I have not recorded the specific reasons for these changes but normally when I see some reason for a change I do change some settings. The Chart indicates a reduction in Volatility that would indicate lowering the Hold Zones.
The Aggression Factors remained as originally set.
Buy Aggression = 0,8
Sell Aggression = 0,6. . .the Aggression factors turned out to be rather high automatically as the stock volatility was rather low these + 2,5 years.
Results per 06-09-2013. . .No extra Capital was added but Costs and Dividends are recorded as time variable -/+ Cash additions.
ROTAC Profit & Yield = 6036,85 & 11,88% Annualised
ROTAI Profit & Yield = 5362,65 & 26.41 % Annualised
Trading Cost = 137
Dividend = 43 <------Forgotten to add most dividend Payments
Interest Earned = 630
______________________________________________________________
SPY2 is almost identical but has only 91 DatSets. On 01-06 2012 the Sell Aggression was increased form 0,6 to 0,85(very high selling aggression)as an experiment.
Interest on Reserve = 2 % but is Compounded at each Trading Point
ROTAC Profit & Yield = 5568,77 & 10,91 % Annualised
ROTAI profit & Yield = 4944,50 & 21,48 % Annualised
Trading Cost = 278
Dividend = 44 <-----Most dividend payment are Forgotten here
Interest Earned = 580
Clearly the increase in the Sell Aggression has minimally reduced the ROTAC Yield but more significantly reduced to the ROTAI Yield. Considering the rising trend that developed after June 2012 this result is logical. . .With a rising trend the Sell Aggression should be lowered so that the benefit of the rising price can be captured. . .as is the case for SPY1.
From the Price Chart it is shown that in June 2012 the price was in a dropping trend. . .the increased Sell Aggression was a logical Bet. . .. . .not from an AIM methodology consideration but from Trend Betting consideration. From the Price Chart it is clear that just beyond that point in June 2012 the prices started rising again and I should have lowered the Sell Aggression again . . .but I did not to see the effect of it.
____________________________________________________________
SPY 3 Is a run for the same period with more intuitive intermittent changes in Hold Zones, Aggression Factors and extra cash Addition.
The Run has 80 Datasets. Hold Zones varied frequently based on interpretations of perceived volatility. . which was rather low and generally fluctuated between 7 and 1 & but on the average around 3 or 4 %.
Aggression Factors Buy/Sell started at 0,8/0,6 and were gradually increased from Dec 2012 to currently 0,96/o,93
In July 2013 an extra 20000 was added to the Reserve due to Reserve depletion from the more aggressive trading.
The number off Trades was obviously higher due to the relatively low Holding Zones.
Interest on Reserve = 2%/yr is compounded at yacht Trade Point.
ROTAC Profit & Yield = 5713,14 & 10,33 %
ROTAI Profit & Yield = 4660,67 & 27,31 %
Trading Cost = 278
Dividend = 260
Interest Earned = 793
The ROTAC Yield has suffered a bit due to more frequent trading but the ROTAI Yield has benefited from the higher Trade aggressions and the more frequent Trading.
The Vortex Program provides to important Reports:
1 Portfolio Revue. This contains all relevant Financial and Trading Result Details that are necessary For Income Tax Reporting;
2 Activity Report. This shows all the individual Trades, Cash Mutations and Costs
Ganaraska,
We have developed a Vortex AIM Parameter Optimisation program called Vortex Back Test . . .VBT . . . to be coupled onto the Vortex AIM Windows program (Vortex). This is the way it works:
1 Select an Equity: The Data Base of Vortex is used for loading up the stock prices into VBT. These prices were previously downloaded from Yahoo by the Vortex Investor. . .his choice. These stock prices are not necessarily all used in Vortex but are there to be used as the investor sees fit;
2 The investor opens the VBT Module and selects an Equity;
3 The Period for the Test Rub is selected,
4 The parameters for the Test Run are entered:
*Number of Shares
*Percentage Reserve
* Trading Cost: Fixed Min. + Percentage IF Min. Amount is exceeded;
5 Holding Zones %
* Buy: Start Value/Step size/Stop Value
* Sell: Start Value/Step size/Stop Value
6 Aggression Factor Fractions
* Buy: Start Value/Step size/Stop Value
* Sell: Start Value/Step size/Stop Value
Additionally various buttons are presented for:
* Run Results. . .It present the % ROTAC Yield for each Data Set in Chart form as well as in a List Form
* Sow File. . .Equity Details
* Make Test File. . .Make your own Test Data
* Example Test File. . .Here you can choose a number of standard equity rice profiles for a chosen period, such as: Sine Wave, Block Wave, Saw Tooth Wave and Random Prices.
The Back Test program optimises the 4 Parameter settings based on Yield Maximization.
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At the moment I am Running 3 SPY Demo Portfolios using generally the optimised parameters as given by this program. In some cases intermediate Optimisation Runs are done for shorted periods in the Past and the parameters adjusted. The idea here is that is a trend deviates from the previously optimised Price History then a new optimisation of more recent price developments is required.
SPY1 is a long term Demo starting at 03-01-2011 till to date. There are 94 Datasets. Latest transaction on August 5
Equity + cash to start = 20000
Equity = 5600
Interest on Reserve = 2% Compounded at each Trade
Reserve = 14389,05. . . .Trading cost of 10,95 already deducted.
Shares N= 44,08. . .N could simply be truncated for integer ..values but are not in this run.
Buy Holding Zone = 7,5 %
Sell Holding Zone = 19 % till August 2012
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Buy Holding Zone = 7,0 %
Sell Holding Zone = 7,0 % till September 15-2012
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Buy Holding Zone = 5,5 %
Sell Holding Zone = 10 % till current date
Percentage Interest on Reserve =
Remark:
The changes in Holding Zone settings were based on the development at the time. I have not recorded the specific reasons for these changes but normally when I see some reason for a change I do change some settings. The Chart indicates a reduction in Volatility that would indicate lowering the Hold Zones.
The Aggression Factors remained as originally set.
Buy Aggression = 0,8
Sell Aggression = 0,6. . .the Aggression factors turned out to be rather high automatically as the stock volatility was rather low these + 2,5 years.
Results per 06-09-2013. . .No extra Capital was added but Costs and Dividends are recorded as time variable -/+ Cash additions.
ROTAC Profit & Yield = 6036,85 & 11,88% Annualised
ROTAI Profit & Yield = 5362,65 & 26.41 % Annualised
Trading Cost = 137
Dividend = 43 <------Forgotten to add most dividend Payments
Interest Earned = 630
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SPY2 is almost identical but has only 91 DatSets. On 01-06 2012 the Sell Aggression was increased form 0,6 to 0,85(very high selling aggression)as an experiment.
Interest on Reserve = 2 % but is Compounded at each Trading Point
ROTAC Profit & Yield = 5568,77 & 10,91 % Annualised
ROTAI profit & Yield = 4944,50 & 21,48 % Annualised
Trading Cost = 278
Dividend = 44 <-----Most dividend payment are Forgotten here
Interest Earned = 580
Clearly the increase in the Sell Aggression has minimally reduced the ROTAC Yield but more significantly reduced to the ROTAI Yield. Considering the rising trend that developed after June 2012 this result is logical. . .With a rising trend the Sell Aggression should be lowered so that the benefit of the rising price can be captured. . .as is the case for SPY1.
From the Price Chart it is shown that in June 2012 the price was in a dropping trend. . .the increased Sell Aggression was a logical Bet. . .. . .not from an AIM methodology consideration but from Trend Betting consideration. From the Price Chart it is clear that just beyond that point in June 2012 the prices started rising again and I should have lowered the Sell Aggression again . . .but I did not to see the effect of it.
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SPY 3 Is a run for the same period with more intuitive intermittent changes in Hold Zones, Aggression Factors and extra cash Addition.
The Run has 80 Datasets. Hold Zones varied frequently based on interpretations of perceived volatility. . which was rather low and generally fluctuated between 7 and 1 & but on the average around 3 or 4 %.
Aggression Factors Buy/Sell started at 0,8/0,6 and were gradually increased from Dec 2012 to currently 0,96/o,93
In July 2013 an extra 20000 was added to the Reserve due to Reserve depletion from the more aggressive trading.
The number off Trades was obviously higher due to the relatively low Holding Zones.
Interest on Reserve = 2%/yr is compounded at yacht Trade Point.
ROTAC Profit & Yield = 5713,14 & 10,33 %
ROTAI Profit & Yield = 4660,67 & 27,31 %
Trading Cost = 278
Dividend = 260
Interest Earned = 793
The ROTAC Yield has suffered a bit due to more frequent trading but the ROTAI Yield has benefited from the higher Trade aggressions and the more frequent Trading.
The Vortex Program provides to important Reports:
1 Portfolio Revue. This contains all relevant Financial and Trading Result Details that are necessary For Income Tax Reporting;
2 Activity Report. This shows all the individual Trades, Cash Mutations and Costs
I support your way of looking at Yield calculations fully
It has been my position always to argue that as long as people understand the "nuts & bolts" of the "tools" they are working with then they are well equipped to make the choices as to what to use.
I agree also that cash in the bank is for many cases also an investment. . . and sure, if a cash supply is specifically allocated to an equity investment is it quite appropriate, indeed sometimes mandatory, to include that in the ROTAC Yield. . .This falls under the topic of Asset Allocation and Cash is certainly an Asset. This is the basic method of Investment Funds that carry a Variable Cash Reserve that is allocated to the Participants, although the participants see their shares as Equity Paper and not really as Cash + Equity.
Many people that simply buy into mutual funds without AIMing also often jump in-and-out "as the wind blows" but do not see their Cash in the bank as part of that variable investment package. Every Professional Investment Institute, ultimately, will calculate their overall yield based on all their assets for publication but internally. . without a doubt. . .they will also have Yield Figures on each Equity Portfolio on the Books. . .and these Yield figures are, I venture to say, usually some sort of ROTAI Yield and perhaps in some cases a ROTAC Yield.
In the same way a person that buys a second house would not include all his cash in the banks as an investment in that second house. . .He would, if he is smart, only consider the money he spends on buying and maintaining and managing the second house as the investment. . .for this the ROTAI Method is the “method of choice” for getting a good indication on the yield. . .he spends years long transforming cash, at various times, into “equity” or so he hopes it will become equity anyway.
I wanted to shed some extra light on this Yield issue for AIMers that now simply use the ROI method with only the initial cash considered and having ignored any amounts of cash that they might have added to the Reserve later on. . . In such cases the Simple ROI would have little meaning.
Grabber, you point is well made but I like to add another dimension to the ROCAR & TOTAI Yield calculations. The Reserve is simply a part the Investor's excess liquid assets that are set apart for AIM investing.
For a person that allocates 100% of his cash to an AIM Investment it is reasonable to see that cash as an investment and to use the Simple ROI as an indication of his Yield. However for such a person it could also occur that for one reason or another he needs to take out some money from his AIM Reserve to buy a new washing machine or to repair his car, and at other times he may have received extra cash added to his Reserve. In that case he has no fixed amount of Initial Reserve but a Time Variable Total Capital= Cash(var) + Investment(var). It makes no sense then to use the simple ROI Yield because the Capital Inlay is Time Variable.
bed) say $ 1 Million has not need to separate his total cash into a portion available for investing and a portion that just sits in the Bank. The yield on his Investment is simply and effectively to be based on the actual capital inlay for his investment...that would give an accurate indication of his investment. . .Cash Base would typically fluctuate anyway.
Nevertheless that person could well look at all the cash he has as an investment. . .usually people do not look at the money in a savings account as an investment but some do but in any case the capital base would also be fluctuation.
So the point is that a simple ROI based on a fictitious fixed Cash Inlay is a poor indicator of Investment Yield kinless one specifically used a Fixed Inlay System and NEVER takes any money out not put in extra money. In practice this would usually not be the case. . witness the many discussion on this forum on: "What to do when extra money is added to the AIM Machine?"
To solve these cases in a systematic way I say the Capital Base for an Investment should be time averaged so that a representative Capital Inlay is available any time the yield is calculated.
I have done this as follows:
1 Time Averaged Return on Invested Cash = ROTAC. . . .Extra inlay or extractions of cash can be done any time and the Yield equation remains valid.
2 Time Averaged Return on Investment = ROTAI. . . .Only the money that is actually invested in Stock is time averaged. The ROTAI formula is valid any time irrespective how many time the invested amount are changed.
The Yield Formulas give accurate indications of yield any time.
Just recently I had an interesting discussion with an AIM Investor on the merits of the Vortex Trade Advice feature that gives PC=V after any trade and how it eliminates the Residual Buy Advise in the Lichello AIM.
The discussion centred on what would happen if the PC=V after a Trade would be used in the Lichello AIM.
Essentially if the Lichello Buy-formula is used and arbitrarily after a trade PC=C would be used that would result in that the new PC would be lower than the Lichello PC would be. If the stock price would drop again then the next Buy=(PC2-V3)-s*V3 and considering that PC2=V2 would be lower than the Lichello PC2 the Buy would be smaller than it would have been with the Lichello PC-Update!
In regards to the many discussions that have been held on the rather large Cash Burn Rate(CBR)of the Lichello AIM it is clear that setting PC=V after every trade is aneffective way of reducing the CBR, while at the same time the Residual Buy Advise is eliminated! This is so even when the Lichello Buy Formula is unaltered. So setting PC=V after a Sale is effectively equivalent to any automatic measure that is used to "Apply The Brakes" on the Lichello Buying Machine
This Brake on the buying rate can be achieved by modifying the PC-Update to
PC2=PC1 + f*Buy. . . with f<0,5. . . .So here the "f" is in fact a CBR Braking Factor
Interesting here is that in the Vortex AIM the "f" is called the Aggression Factor. . which of course is exactly the same thing... a low "f" results in a low "Buying Aggression".
This a new look at Vortex AIM: Essentially Vortex AIM is virtually identical to a Standard AIM with its PC modified to PC=V . . .and it operates then in a similar way as Vortex AIM with a f-value of about 0,25
In Vortex the Aggression Factor. . .or Braking Factor if you will. . .is formalised using the PC-Update Formula PC2-PC1 + f*Buy and from that the Buying Formula is automatically tempered for applying the Brakes with using low “f”-values(lower than f ~ 0,25) and applying extra Buying Aggression with “f”-factors greater than approximately f~ 0,5.
So, anyone that likes the idea to set PC=V after any sale for tempering the Lichello Cash Burn Rate might as well use the Vortex Aim
Using delayed trading will automatically increase the magnitude of the next Buy executed at a lower price. This is no different than what happens in the Lichello AIM.
Ganaraska,
If your search for AIM software for back testing has not yet resulted in a suitable program for you I advice to try VORTEX AIM.
It has a basic structure as Regular AIM but is has variable settings for buying and selling Aggression Factors, which allow for large +/- trading amount for Low Volatility Stocks.
We have Spread Sheet Version(€25) and a Windows Version (€100).
The Windows Version also contains a complete Financial Management System and a Stock Prices Downloading System.
Specifically for VORTEX AIM is that the Yield is calculated in two ways:
* Regular Yield: ROI Using total Allocated Capital. . .The Reserve is part is the Investment;
* Time Averaged Yield: ROTAI. . .For this only the actual invested capital is seen as an investment. . .It is similar to the ROCAR that Tome Veale developed. The Reserve is not treated as an investment but only as Available Capital.
VORTEX also has a feature that eliminates Residual Buys. . .This is a major feature in Vortex. . It does nor trigger False Buy Signals.
The power of VORTEX is that you can do the back testing in the Excel Version with a variation of parameters to optimise the yield for a certain series of historical Data. We also have a separate Optimisation Program for having the parameters optimised automatically using Stock Prices already downloaded in VORTEX . This Optimisation Program is not yet Listed on out Purchase Order Page:
http://www.ckweb.nl/vortex_us/index.php
Purchase Order Form
http://www.vortexcw.nl/vortex/index.html Go to “Order Form” Page
Hi 1step, I know what you are saying is very very true!
A number of years ago I participated in a Investment System Exhibition and after that there was a definite uplift in the interest and extra sales for a while but after that interest faded again.
At this point in time I have been working on this off and on for 20 years on this specific Microsoft-based program, and countless hour of development work and debugging work we have put into it.
The underlying truth is that even though I have been worked on AIMing for more that 30 years since 1981 it has never left the Hobby Stage next to my other work. In order to gear up to get VORTEX to the level of a serious commercial product I would have to start competing with the commercial activities like that of Mark Hing with his AI, and others like him, and mount a similar marketing campaign. . .That seems to me like something similar to climbing to the top of Mount Everest. . .It is much easier and efficient to look at a documentary of others that got the top of that mountain.
I can not seriously compete on the level that is required for capturing a share of a market that Mark Hing is operating in. The type of marketing that is required to capture a part of the American market (for any product) seems to be a bit "dishonest" . . "Selling The Sizzle" instead of selling the steak". . .Every time I get confronted with American Marketing examples I find them almost "offensive" in regards to the fact that the Sizzle is being marketed and the quality and features of the "Steak" are not mentioned.
I have once discussed marketing techniques(generally) in relation to book-writing techniques and someone that knew how to separate the chaff from the grain told me this:
"The popularity of a book is inversely proportional to the number of formulas that are present therein. When people peruse a book and they see a lot of equations and charts they put it back very quickly and look for one that has only text and photographs in it".
Of course, if one is marketing via Internet the title of a book or the name of the product needs to catch the imagination of the readers. . in that sense the name Vortex Method appears to be meaningless to almost anyone. . .I would have to think of another name. . I hate to do that!
When I write something about a technique I need to enter the essentials of it in my promotion and that becomes a “book” with Formulas and Charts. Evidently that does little for marketing the product. . .people want to hear that they will get rich over night while they are sleeping. This would be a distorttion of the truth. Vortex Aiming is a lot of work that sleeping.
Honestly, I have no more steam on the kettle to start such a commercial campaign and to spend another 5 years on it to break into a markets that appears to be limited anyway. Somehow I feel: “I have tried it long enough”.
Would you like to buy the Vortex Program for a pittance and do the marketing for yourself?
I tried to sell it before and got no bites. For people that like AIMing it appears that they like to tinker just like I do and they rather develop their own “AIM Derivatives” than buy a program developed by others.
That is not a problem. . .
I am like that too
Being Back is relative.
There appears to be very few people showing interest in Vortex Aiming so I check the site less frequently.
It is mostly my own doing. . .I am not realy marketing the program in an agressive manner and this causes the interest in it to wane.
Anybody that is interested in taking over the program is welcome to do so!
I am runnung out of steam
Regards.
I have been "off-line" here for a while.
Just want to let all of you know "I am Back".
PraveenP,
I appreciate your remarks and advice as to what is the "best way" for the trading strategy but at the moment that is not my priority. Many years ago I already concluded that a simple AIM strategy is not well suited for options because of the "short run time" and more than that, Options did not fit the basic assumption under the Old AIM that one needs to "update" only once in a Blue Moon and for the rest one would spend his life just going to work, mow the lawn, buy groceries, tend to the kids and the wife and go to Church, and if there was time left maybe have a peek at the AIM Machine. . .
AIMing, and especially Vortex Aiming, has become an activity that for many AIMers has become a serious hobby or even a significant, or perhaps a primary, source of income. . .I am looking at it from that perspective and asking the question: "How do I need to modify Vortex AIM for Efficient Option Trading in the future?".
For any equity with high volatility the partial in-out-in-out. . principle to cream the profits is no different than it is for simple share-trading, but with Options one better not relax and let things ride for a month. . .then to think: "Maybe I might have a look at my Options, tomorrow, if it is raining, and the wife is having a chat with the Girls at The Tea Party, and when there is noting else to do".
Also the Margin Requirement for a Sell Option ties up capital so for someone with little cash the options with Option Trading are limited. . .Still I have started to "Play & Tinker" with Penny Options, both buying & selling for the purpose getting "wet feet" on the mechanisms required for integrating it into Vortex AIM.
One thing is perhaps against it. . . very aggressive trading that in Vortex AIM is an "option" for low volatility equity trading to get the ACTION beefed-up. . .things can get rather complex if one starts using Hold Zones, CER, SAFE, Aggression Factors on top of the factors that must be taken into account for Option Trading.
That is basically the background for my current effort and if any one would have +/- remarks on the Option Trading Mechanics using an AIM strategy I would like to discuss them. For example treating the Reserve as a Margin Requirement is fine, but only as long as you realize that you cab not open extra options with it. . .So one would need a much larger Reserve and put a restriction on the spending do that the Margin Requirement is satisfied. . .things like that.
The AEX which I an using now for Option Trading is not very volatile but the cost of trading 1 contract is between € 2.30 and € 2.90 and in some cases the closure of a contract below a certain price is "gratis". . .This provides for very high Hobby Yields.
For example, on the low end of the Penny Option one can easily realize gains at an Annual Yield from 50% - 500% and less frequently more much more than that if the volatility is high enough.
It is clear that gains of € 10 or so are not profitable if I count the time that is spend on it. . .if however I had € 25000 of spare cash tp play with then the actual profits I speak of can be increased 10-fold . . .I have only € 2500 to play with. . . for now
AIMing Options
Long ago I was asked if it was possible to AIM Options with Vortex and I answered: "Of course you can! You can AIM anything that has a variable value. . .Horse Trading with Vortex is a Piece of Cake.
At the time. . .Ohhh. . . time flies!. . . I did not bother to adapt Vortex for Option Trading but now I have gone into that and I call it Penny Option Trading. . .POT. . .POT is legal!
The entering of the price and cost is a piece of cake. The Margin Requirement is entered as the Reserve Value. . it requires a bit of tinkering. . .That is my ProfessionJ
Example 1 Contract. Approximate amounts
Call AEX JUN13 @ 380 Sell. . . .Current Price AEX =345
Price = 0.4 Commission Cost = 2.90
Margin Requirement = 1560 at the time of opening.
The AIM Option Value = 100*0.40 = 40
Commission = -2.90
Net on Bank Account = 37.10
The Capital Injection is say 2000 to cover the Margin Requirement.
Interest on Reserve = 0 %
After execution this appears on Vortex
Reserve = 2000-40-2.90 = 1957.10
Equity = 40 which has already been deposited on the account.
PV = 1997.10
Profit = -2.90
As a writer of the Option I know that the account actually stands on 1997.10 as the value of 40 is already liquidized. I can change it easily so that the Value becomes added to the Reserve. For my own use this is not necessary but for other using Vortex the amounts shown must make sense without having to do any calculations.
Also I can start with exactly the Capital amount so that the Reserve reflects the Margin Requirement(MR) of 1560 but the MR is not yet a variable in the program.
I could change the program so that the Reserve become the MR. As the price of the option changes then the MR changes as well. That way I know that my account needs to have at least the MR value on it at all times.
Question
Does anyone think it is necessary that in the program also the potential Benefit and the Risk of a forced execution should displayed on the Status Screen of the Program? I do not need that for myself as I simply look at the AEX price difference and can roughly calculate the Execution Amount if the AEX Price approaches the Execution Price and decide on that to let the execution take place or to close the Contract.
In order to get the program adapted I simply need to enter the applicable AEX Price and the Execution Price. . .The trading costs can already be entered.
What would be your suggestions be on what to show on the Status Screen?
If the trading costs are a small fraction of the total trade amount in AIM, or in any other Trading Management system, then it will make little difference for the Next Trade Amount Advice. The same can be said for rounding up or down the Trade Advice to avoid fractional share acquisitions.
If one is rounding up & down to round numbers of 100 shares it will affect the next Trade Amount but that is also irrelevant: one can arbitrarily decide to trade less than the system advices. . .In fact AIM does that by definition with setting the SAFE value to an arbitrary value. Another arbitrary alteration is the Hold Zone setting: each one of these affect the trading actions, often knowing that these settings may not be optimum, but ignoring a cost factor as part of the equity price creates inaccurate yield calculations that should be avoided.
If the trading cost are relatively high and if they are not accounted for as investment then the investor does not have an accurate indication of the performance of the investment. Suppose an investor is not sure if an investment is safe and he hires a consultant that cost $ 2000 per year. No matter how you look at it, that money IS an investment of $ 2000/year in that equity and not including it in the investment calculations distorts the Investment Yield. If people do not mind that then it is no problem. A good management system should account for and incorporate investment costs in a specific way so that it figures correctly in the yield calculations & the Next Trading Calculations.
If one pays a lotof money for buying equity and does not consider these cost as an investment then it seriously affects the Yield Calculation in a negative way. There is no escape from that conclusion.
RCA420
Commissions:
$10 commissions per trade and I'm buying 100 shares @ $7 per share which totals to $710 with commissions included. Now I'd be adding $350 to Portfolio Control, $700 to Stock Value and subtracting $710 from Cash.
I noticed that Tom Veale already answered your question, so I just add a bit to that: To see the investment as $ 710 instead of $ 700 is very logical as equities generally are "loaded" up with hidden fees beyond the basic commodity you are investing in.
For example is I own stock and it is listed @ 100 I would give a Sell Order for $ 110. . .if you buy it you are paying me $ 10 for my profit and then you pay the broker his fee on top of that. . .The difference between what you pay me extra(my profit) and the fee(s) of the broker(s) are essentially no different in character: it simply is part of the Investment Cost.
So instead of adding $ 350 to the PC you might just as well add $ 355 to the PC, and this does not stop there: Any costs you run into for "running" you portfolio are investment costs and ought to be added to the investment at the time you buy the shares.
In relation this any costs that you can not add to the share purchase at the appropropiate time can be added as an investment just in the same way as you considered the Original Cash you allocate to you Portfolio.
Say you start your portfolio with $ 20000
Cash = 10000
Shares = 10000. . . . .PV = 20000 <-------This is you Investment IF you consider the allocated money as The Investment.
Each time you buy shares you add the $ 10 costs to the share cost. This gives you, at the end of the run:
Profit = Value - 20000. . . . .Yield = Profit/20000
Should you, at say after 1 year, have a big investment expense such as for example the fees of a professional investment consultant @ $ 5000 then you ought to add that to the investment Value. You can do that in different ways:
1. After 1 year you add $ 5000 to you Portfolio Reserve and from that you pay the consultant $ 5000. . . .You investment is now $ 25000.
2. You can treat the $ 5000 as costs that have accumulated proportionately over time so that your Average Investment for the whole year is $ 20000 + $ 5000/2 = $ 22500.
Profit = (Value - 25000)
Yield = Profit/22500
3. In principle you could do the same with the Commission of $ 4 per year
Profit= (Value - 20004)
Yield = Profit/20002
but as Ton mentioned, for such small amounts it makes no sense to keep track of it if it happens only one per year.
If you want to be accurate and incorporate your investment costs into your AIM Portfolio in a systematic manner you could use the Vortex ROTAC Method for tracking Costs and the Yield based on the Time Average Injected Capital. . .At any arbitrary time it calculates the Accumulated Cost(tax deductable) and the Time averages Investment and the Yield based on the time averaged Investment at any arbitrary moment in time:
ROTAC = Return On Time Averaged Capital
Profit = Share Value – Total Capital Investment)
Yield = Profit/(Time Averaged Capital Investment)
Regards
Toof, you can make it simple so that on the average your yield percentage is a bit more realistic.
If you are adding to your original investment in an arbitrary manner, small amounts throughout the year. . . Like an Investment Plan. . . say every month something then roughly this would do fine:
Yield % = Profit/(Start Investment + 1/2*Added Investment)*100
The next easy thing is to set up an equation for this in Excel in you AIM Spread and simply put in the numbers when you manage your AIM.
Piece of Cake!
Toof, that formula does not give a good representation of Yield %.
(Ending balance - (starting balance + amount added during year) ) / starting balance = return %
I presume here you mean here "added equity". . .(Or did you mean added cash?)
Suppose this is what you did:
Start B = 10000
End B = 15000
Added during the year = 5000
You get (15000-15000)/10000 = 0
With this nobbody has any idea what it means.
Suppose you added the "value of 5000" very close to the end of the year. Then the growth of the 5000 in the End Value is almost all due to the 10000 Start Value:
Real Yield = 5000/10000 = 0,5. . .50 %: Not a bad Gain!
If however you added the 5000 close to the start you have this:
Real Yield = 0/15000 = 0 . . . 0 %: Which is a Break Even!
What you are doing tells you nothing unless you work into the Yield Calculation the time at which you added value to the Investment.
If you put in the extra 5000 after 1/2 year then your Average Investment for the whole year = 12500 and the then
Real Yield = (15000 - 12500)/12500 = 0,2. . . 20%: Not bad either.
You might as well use the Time Average Investment Formula if you are interested in the yield percentage. If you do not care about that then you might as well simply look at the profit and not bother to calculate a percentage.
(Money Into Equity) - (Value of Equity @ Year End) = Gain
You do not need to know more IF you do not want to know the performance of your investment in %.
>>C1 = 20000/2*(1+0,07)*2 = 2140. . .that is fair if the Average invested capital = 20000 <<
This obviously is a typing error should be:
C1 = 20000*(1+0,07*2) = 21400. . .that is fair if the Average invested capital = 20000
I had corrected it earlier but did not Update the text
In the above it is obvious also that if one uses an average ficticious investment for a period for comparing the yield and then assumes the yield arises from a compounding growth process the Yield Percentage becomes lower!
Toofuzzy, the interesting thing about looking at investment gains for a Variable Investment Base(VIB) is that there are various ways for calculating the gain. Using your method . . .you are looking forward from a known VIB. . .of 7%/yr simple interest can be calculated as:
C1 = 20000/2*(1+0,07)*2 = 2140. . .that is fair if the Average invested capital = 20000
C2= 20000*(1+0,07)^2 = 22898. . .that is fair if the Start capital = 20000
C3 = 20000*(1+ 0,07/12)^24 = 22996. . .is fair for compounding monthly;
C4 is en Explosive !
C5 = 20000*(1,00019165)^365,25 = 23005. . . is fair for compounding daily;
C6 =~ 20000*e^(0,07*2) = 23005,47603 . . . is fair for compounding every second!
<<But if you take the gain $2,898 / by the 2 years= $1449 then divide the $1449 / $20,000 = 7.245%
which is a higher return which only gets higher if done over a greater number of years. I don't feel this is a fair way of looking at returns. >>
If this is done using the Internal Rate of Return for any investment that is 20000 average (or constant) for the 2 years then it is certainly fair because the rate of Return = 14,49% over the 2 years, years based on simple interest.
The IRR Method reduces a VIB to a ficticious average investment base that is assumed to create the equity gain.
This IRR Method can be used on staged capaital injections such as for example a $ 500/month Inlay Program for an investment, or for a completely arbitrary Inlay Program with different amounts injected at irregular times during the Investment Period. This would be the ROTAC Method. If you look at time based equity purchases this would be the ROTAI Method.
As long as you use a calculation for a yield method that closely resembles what is happening for you, then that method is fair.
It’s time to Reflect on how to determine the Yield on my SPY Demo investment.
This Spy Demo is an unfudged Demo execution only trades advised by Vortex.
I have been running a SPY Portfolio for exactly 2 years from 03-1-2011 to 02-1-2013 and calculated the Yield in 4 different ways:
1 Simple ROI
Using $ 20000 starting Capital as the Investment Base + 2% Interest on the Reserve and Trading Cost deducted from Reserve.
Dividend is also added to the Reserve.
This is the Black Box Investment Methos with the $ 20000 going in and the Profit coming.
Profit = $ 3.137,75
ROI = $3.137,75/20000/2*100 = 7,84 % /yr
Buy & Hold Yield = 7,41 %/yr
2 ROI on Time Averaged Capital Injections
If however one considers all the money that has been added to the Reserve like the Interest and the Dividend and when that is Averaged over time for the 2 years in SPY that comes out as a Time Average Investment of $ 20674 and then the Yield looks like this:
Profit = $ 2.464,02
ROTAC = $ 2.464,02/20674/2*100 = 5,77 % /yr
3 Return on Capital at Risk
Average Capital at Risk = $ 7132
In this calculation I look only at the actual investments for equity acquisition (including trading costs). The question now is: "How does one calculate the Profit?
Dividend is not a profit on equity. . .(as dividend is paid the share price goes down;
Interest received is not earned on the equity;
In this case the SPY Profit = $2.258,00
ROTAI = $2.258/7132/2 = 15,84 % /yr
This an Actual Rate of Return On Equity. . . otherwise called IRR.
In this case the Dividend and the Interest earnings would be part of the bank account earnings that have nothing to do with the Equity Gain.
4 The Inflated Return on Investment. . .IRI
If one considers that the interest earnings on the Reserve and the dividend should be included in the profit then:
ROTAI Yield = 22%/yr
This is however a grossly inflated yield representation.
*************
I also run a SPY Demo that I started on 19 March 2012 using a optimization period from 19 March to approximately Mid August.
After that only trades Predicted by Vortex were executed.
Simple ROI = 14,72 %
I'll check my Mayan Calendar
That will be a long wait then as there are no more dates on that Calendar! Promises Promises!
TooFuzzy, I certainly do not have "the dope" on US Taxation issues. No need to explain it. . .I have just figured out how it works here in Holland
It is easy for me too as I have a very low income and no assets. . .I usually get money back from taxation that was applied to my pension.
If one has us less that about € 23000 Savings then that is exempt from Capital Asset Tax, but if one has more the income on it is above the TaxationThreshold. . . about € 10000 or so. . .It works like this here:
Investment Equity is say, average for the year € 100. . .Cap. Gain is assumed to be 4% . . .That = € 4.00.
They do not look at the real yield. If you real yield was more that 4% then the average value if the investment would be higher than € 100, and would be say € 105 if the investment gain is 10%. . .(Then the investor pays 4% on the € 5.00 assumed investment gain).
The € 4 gain on the € 100 is income. . .that is taxed @ 37% (next year) on the lowest income bracket:
Total Tax = 4*(1+0.37) = € 5.48 on the € 100 Investment Value or total Tax Rate = 5.48 %
However if you have other type of Assets . . like a € 250,000 Second Home, the asset tax is 1,5% and with a high income then one pays 52% income tax on all income. This then makes the total tax per € 100 Investment and € 100 on Assets
€ 1,5*(1+0,52) = € 2.28 Asset Tax per € 100 Asset Value
plus
€ 4*(1+0,52) = € 6.08 Investment Tax per € 100 Investment Value.
Almost every year these rules are changed to balance The Budget but I think for the last 13 years they do not managed to do that.
The deficits get bigger every year!
Have a profitable 2013 Tom!
You make the future look even better than I have envisioned it!
My Partner in Ottawa has some Vortex Wind Turbine Designs that could fit into the picture you have conjured up!
He is quite charmed about everything that runs on Vortex Technologies
Tom, I can imagine that if this system on double taxing happens to investors that have little of no capital that this hits them harder than for people with a good filled bank account. . . .One should better not invest money that he can not afford to lose
In the case of this Dr. X I interpreted his case at first that he got a "taxable payout " of ~ $ 20000 on his $ 50000 Investment and that he had to pay $ 10000 on Taxes so that his investment would be worth $ 60000. . . but that did not appear logical as all. . No one would complain about getting $ 10000 richer in 7 weeks!
Then I did some other calculations but these gave ridiculous results as well. I think now after reading Toofuzzy's and you remarks I think I have it straight.
I think I better stick to “Vortex Mechanics” and leave the Investment World for others to be figured out
I think you are right Toofuzzy!
OK, Maybe on the $ 50 gain in The Netherlands this would not be the same . . .at least not for investors with little Capital. Perhaps it may not even be considered Income as I claimed it was.
The other buys the fund from the first taxpayer for $100 and the stock distributes a $50 capital gain and drops to $50 (or $49 or $51 whatever) . So now that I think about this, it doesn't sound fair. The government has got its tax twice!
So, you mean that the gain distribution (dividend as I understand it) does not constitute an Investment Gain. . .Equity Yield remains constant at 50+50 = 100, but you pay taxes on the $50 pay-out and then when the investment returns to $ 100 you will be taxed again if the $ 50 gain is paid out. That was the scenario that I understood from the Experience of Dr. X in the Reference Link.
My question here is this: "Does this happen like that to investors that invest only $ 100 and that have a Capital of only $100 in their bank account?
If that only happens to rich people the n I do not think it is unfair. . . .The Tax Load should bear down on the Rich more so than on the Poor, that I consider fair. . .where you draw the lines in the sand on this is a debatable issue for every case.
In The Netherlands the income tax rate on the poor (above the Tax Free Base) increases from 35% to 37% in 2013, BUT other compensations for the poor . . .(like I am) . . .are rising. . . they will lose only a little overall on income but Medical Insurance cost is rising significantly!!! A lot of poor people think that is unfair and the complain loudly about it! I an not complaining. . . I just suffer my fate J
To turn the Crisis Tide the Middle Class will face lots of extra income loses because of the higher taxes up to 52% + they get less income deductions so they taxable income goes higher. . they complain so much here that one would think that The Netherlands is one huge Wailing Wall.
Fairness is a mostly a matter of perspective.
Our Majority Coalition Government is convinced that it is as Fair as The Tooth Fairy is.
I have some interesting information to show you!
I got an E-Mail from Todd Etter of the Motley Fool today. . . one almost identical to the one that I got about a year ago on the same subject of a new technology with Gigantic Profit Potential:
http://www.fool.com/shop/newsletters/18/8a12aaa9-b18c-499d-9141-51da14bb40e1.aspx?source=isaspodft0000326
Recently on Face Book the subject of this technology. . .I am almost sure it referred to this same technology as Todd Etter is recommending . . . would do away with every type of remote Control Unit and replace it with a Personal Remote Control Unit (PRCU) that would allow one to turn on the lights in his house in Connecticut while drinking Pina Colada in Honolulu. . .A Pina Colada that would have been ordered on the PRCU.
The discussion on Face Book explained that this PRCU could swich on & off every electronic device that one could buy today and all electronic devices that were yet to be invented.
I spend almost 3/4 of an hour reading this e-mail that read like a Fantastic Secret that only Todd Etter knew about and was going disclose later on in the E-mail, and he made a point of it to disclose already that only HE could disclose the secret. . . because, well, it was a Secret, but that was not the interesting information I want to show you!
To my horror I noticed I had only read about 20% of Todd’s Story and I had other important things to do. . .for example I was intending to write out some specific Thermodynamics Equations and Turbine Work Equations for a novel type of Vortex Turbine I have invented, and for which currently the CFD Analysis is being executed alreday by an Expert CFD Consultant.
These equations are rather simple to write down but a little difficult to solve without the use of CFD but still one needs to get a grip on which variables and which flow processes were the most important features to be optimized in order to guide the CFD Analysis and to get to a satisfactory End Result quickly. . . Without such guidelines the CFD-work is analogous to shooting blindfolded with a hunting rifle hoping to hit a Black Bear. Actually all this techno-stuff is Off Topic and of course not of any interest to most if you.
I was a little perturbed that it took so long to get to The Secret Todd was going to disclose. . .I stopped reading about the Wind-UP to get to The Secret and thought it worthwhile to ask all of you to read the whole article for me. . . so you would maybe discover The Secret and tell me all about it.
For those of you that would not be interested in buying-in on Todd's Secret there would be a great Ground Floor Opportunity for you to invest in continued CFD Testing of my Vortex CD Turbine Design. . .That way I do not need to get rich first with Todd's Secret to finance development of my turbine. . .Such an investment in Todd's Secret would consume all my meager Savings that I managed to keep from a Damage Compensation Claim Ref. my 2007 Motorcycle Accident, and a little bit of money I saved from some work I have done over the years since then to keep myself "afloat"
Investing in Todd Etter's Secret is not an option for me.
Is it for any of you?
If not, then you might as well invest in my Vortex Turbine !
Thanks Toofuzzy!
It looks like there are many ways to "Skin a Cat". . .
This is like Paying The Piper and then having to pay Tax on what you pay to The Piper.
In The Netherlands we call it Sales Tax. . . @ 21% now!
On the investment side I think taxation work a lot different here but I can not say for sure. As I understand it we are taxed on profits and above a certain limit on Asset Value.
For example:
I earned € 63 on a PostNL investment . . .over a 15 day span. . .It was a 148% Annual Gain . . . and sold out! I pay taxes only on the € 63 IF I am in a Taxable income bracket. . something like 36% for the Lowe Bracket Income Range.
If I earned the € 63 on an investment that was worth more than the Threshold Capital Assets I would have to pay the 36% on the € 63 Plus 4% Asset Tax on the Year End value of the investment.
I never heard of a Taxation Invoice just after buying into a Mutual Fund here like ot happened to that Dr X..
Something in the $ 9000 +$ 1000 Tax Story probably goes over my head!
Do I understand it correctly that Dr X invested $50000 and had to pay $ 9000 + $1000 in Taxes 7 weeks later without having made any gains on his $ 50000 so that his net investment was worth € 40000?
That works out to be a 148,6 % annual loss if his investment would stay at a value of $50000 for the following 45 weeks. In order to break even after a year his investment should generate $ 10000 net after the taxes Dr. X would have to pay on the new gains.
At a 42,1% average tax rate his earnings on the $ 50000 will have to generate a $ 17272 yie1d . . .or 35,54 % . . . .in a year from the date he invested the $ 50000.. . .and he would not have even gained a Penny!
Is that what the story implies?
Who is to blame for such strange taxation laws?
Could Obama have prevented this from happening if he knew about this?
Hi BowlerBob, 14 September 2002 is almost a century ago! That Quantum Leap was indeed a brilliant stroke of Genius
I have to read that post again to figure it out
As to the more recent event of Ocroft's Invention, as I recall it, It was not that I did not understand Ocroft's idea but rather that the exact details he used to "Call" the Trading Points. . .on the Buy side and the Sell side were unclear to me. As I recall various people here tried to explain what Ocroft actually was doing.. . .Ocroft did not give precise examples at firsts so I "groped in the dark" on that for a while
In those days I discussed various items for delaying the trade-points with Don Carlson. . .This was triggered by the fact that Don used an identical Trade Multiplier "M" as I did:
Trade = (PC-V)*M
Don calculated the value of "M" using the spread of the Trading Range (in some way I do not recall),while in Vortex the "M" was calculated on the PC-Update Aggression Factor “f” this way:
PC2=PC1 + f*(Buy)
M= 1/(1-f)
but the value of "f" was not tied specifically to the Trading Range Data but to 1) the volatility of the stock prices and 2) to the Aggression with which the investor wanted to trade! I have not been able to find a concrete way for calculation "f" from statistical price data other than using short range historical prices and optimizing for that a certain period of a stable Trading Ranger. That works and I use that now.
At that time on the past I used an idea Don was explaining to me. . .increasing the Buys and Sells in magnitude as the price reached close to the Trading Range Limit, essentially going All In at the Bottom and going All Out at the Top. I attempted the find from that information the values of "f" using an exponential formula:
Trade = (PC-V)/(1-f) = C*e^a
C would be some basic Standard Trade close to the Mid Point of the Trading Range and then the value of "f" would be calculated from the value of exponent "a" that would be found from the Trading Range statistics:
1/(1-f)= e^a
f = 1 - EXP(-a)
With a being caluclated from the Logarithmic Decrement.
It became to complex to carry it out and I abandoned it.
Then I formulated the idea that Bert communicated to me.
So, I will claim, from now on, that Ocroft will have give me a Commission on all the gains he realizes with my Quantum Lean Method. . .I will share that with Bert. . .If I can find him
That's sad news indeed.
Don and I discussed a lot of AIM ideas at the time he was active on this Forum. After that I kept in touch with him for quite some time as one of his AIM-derivatives was essentially identical to what I used. He introduced that version in an AIM Completion here. Don's Multiplying Factors were structured to concentrate the Buys and the Sells close to the limits of the Trading Range. . a concept we explored here again with various the Ladder Structures that Clive (Is7550) and I proposed and "tinkered" with. . .In my view Don was the inventor of that too.
I especially remember his MACRO Filter which he asked me to test and comment on before he presented it on the Forum here. Quite a prolific Idea Man he was!
R.I.P. Don!
Hi Toof
There seems to be a disconnect between your model portfolio example and your actual results investing in a real stock. What do you attribute that too?
In real life you can't choose every individual stock correctly I suspect.
Actually things run pretty well on course. A disconnect with a fictitious Demo as my Penny Stock Portfolio will of course always be the case. This also is true for any fictitious Test Price Structure.
My Spy Demo runs for 2 years on January 3rd, and I ïnvested" in it as if a sonservative investor would have done with real money. No disconnect on that one. . It is ratherconservatively executed and reflects reality for a conservative oersin. Of course I realize that SPY is an Index, so a conservative approach even with an AIM-like method would not create spectacular results. I would be interested in what other AIMers got on SPY for the last 2 years!
Per Dec. 7 the Vortex Results are:
SPY
ROTAC yield based on "invested" start capital of $ 20000 = 6.64 %/yr
The Buy & Hold Yield for the same period = 6.02 %/yr.
ROTAI yield based on the Equity purchases = 13.4 %/yr.
Average invested Capital at Risk = 6776 !!!
PostNL
The Stock that I actually bought on December 3rd dipped 2.5% on Dec 4 and came right back and went higher. I bought only a small package worth € 1327 with a € 10 Trading cost. Just for some experimentation. . . and to Test the Vortex Optimization Package on a real case. The stock is rather volatile and I like that. For the last 1/2 year is was I estimate About +/- 20 and 30 % between the Trading Range.
ROTAC based on € 2500 Capital Investment = 5.6%/yr . . . without the € 10 Trading cost the yield = 46 %/yr
I know it means little as yet, except that the volatility is doing its work! What Post NL will do in the long term is of course crucial.
ROTAI = 11 %/yr. . .without the € 10 cost it is 120%/yr.
Average Investment = 1327(not counting the € 10 Trading cost).
Average Investment = 1337 counting the trading Cost.
Profit in 4 days = € 1,69
Trading Cost is recovered but if I sell now it will cost € 10 again.
In VORTEX all trading costs are included as investments in the ROTAI Formula. In this sense the yield figures are conservatively calculated.
Right your are Tom but the 2,5% loss in one day did not hurt. . it was only € 35
Besides that I never had any Pain yet with my Stock Market Investments. When I got out in 2001 we had a great profit that was invested in my Engineering ventures. . .That's were I lost the bundle that caused the Pain!
My current investment in PostNL is quite small and on December 6th the price had recovered from the Dip at 2,588 to € 2,6750. . .a gain of 3,36% in 2 days.
For the 3 days running with the € 10 Trade Cost and 14 cents interest figured in:
The ROTAI yield = 4,7 % per yr.
Without the € 10 Trading cost the ROTAI Yield = 161% year
It looks OK so far!
Hi Fuzz!
I am with you on # 1;
I disagree with you on #2;
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I bought PostNL(AEX Market) on December 3rd. Volatility short term Trading Range history eyeballed @ +/- 10%. Not done any Optimization yet.
4 parameters
Hold zones: +/- 8%
Buy Aggr: 0,5
Sell Aggr: 0,4
We have developed an optimization Subroutine for Vortex to optimize 4 parameters:
2 Hold Zones
2 Aggression Factors
Trading Cost vatiables are set at:
Min. Amount per Trade = 6,50
Plus Ratio Amount = 0,001*(Trade Value -3500).
I have tested the Subroutine on the SPY Fund and for now the results match the parameter settings approximately as I had set them for the Demo Portfolio. The predicted yield matched the Demo Yield quite good(As of 5 Dec. ROTAC= 7% and ROTAI = 13%). I will use this optimization program for the PostNl Individual Stock to set the parameters. Experimenting is my game on this.
****************************
I agree with you on # 3;
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In a multiple Fund Portfolio with 10 Starters in my Dutch Demo Penny Stock Portfolio I AIM each Fund individually. These Demo investments do not reflect my personal financial resources. . .you need deep pockets to do invest like I did in the Demo. Results from 16 February 2012 - 5 December 2012. . .The AMT Fund was cashed out some months ago after a 100 price jump :
Results on total Portfolio:
ROTAC Annualized Yield = 358 %
Sum of Capital Invested = 502000
Yield is based on the Time Averaging of the injected Capital
Reserve = 353811
Stock = 950594
Interest earned on Reserve @ 3%= 4856
Trading Cost estimated at ~1% per trade (Can not access the Portfolio Cost Report for this right now).
ROTAI Annualized Yield = 1031 %
Yield is based only on the Tine Averaged Investment(Capital that is not invested is not at risk)
*****************************
I listen to you but I choose to reject some of your Advice.
Yes Please