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Ray,
In this post, I want to discuss the pricing of Index ETFs.
Index ETFs, like IWM (Russell 2000) or SPY (S&P 500) are priced as a fraction of the underlying Index (in these two instances, 1/10 of the Index value). Their prices have nothing at all to do with the normal Supply/Demand price structure -- that is taken care of in the value placed on the Index, along with the appropriate "weighting". The SEC requires the Index provider to generate its value every 15 seconds during the trading day, and these basic ETFs must readjust their price to conform. This means that the volume of trading for IWM or SPY has absolutely no bearing on its price. The price is adjusted 1560 times during the normal trading day -- any slippage is taken care of then.
However, the basic price structure of the Inverse and Leveraged ETF versions is quite different. The issuer arbitrarily decides on the price so that it (the price) can move up or down as needed to reflect the purpose of that ETF. That is why they will often have Splits or Reverse Splits to put the issue back into a medium price range. The pricing of these ETFs is not based on the PRICE of the Index, but the movement in price. And this is where your statements about % gains or losses is appropriate -- it gives the correct impression. These instruments connect their price movements to the % change in price of the underlying Index -- not the actual dollars and cents of a price rise or drop.
Not withstanding my remarks in the other post, I also tend to agree with your caution about using Inverse ETFs, Leveraged or Non-Leveraged, as a cash pool, especially when beginning a new AIM position. We don't know where the market is going to go from here on, and neither does AIM. We can look at a graph of the past action and see that it has been in an Up Trend or a Down Trend, until now, but we don't know what tomorrow will bring. Also AIM cannot determine that either until some time has passed. So, my thinking would be to just use ordinary Cash instruments until AIM proves to you, by generating sales, that the trend is Up, and then put the sales cash into the Inverse ETF. That way you can "work into" the position and not be "overexposed".
Regards,
Bob
Ray,
I have been waiting for someone to "chime in" in response to your post, but no has, as yet, so I will attempt to do so. I see two conflicts with your statements that I wish to address: 1)
Clive,
If I understood your post correctly (and other posts where you've written in more detail), isn't your idea of a "Buy Vealie" essentially what Ocroft presented as his general strategy?
Bob
Praveen,
I just wanted to follow up on the FaceBook position. You've had it for over a year now and, I assume, you rebalanced sometime in May '13. Since the price, at that time, was lower than when you originally purchased FB, you then added to your position? Now that the price has finally "skyrocketed", do you take some "off the table", or wait until next May to re-examine? Do you only look at each stock on its "anniversary"?
Thanks,
Bob
LC,
I am not the same "style" investor as is Ocroft, so his decision to sell after AIM shows him a 20% gain, while it is good for him (he invests in Stocks). I use market ETFs, so I am more inclined to use the same method for Sells as for Buys, that is, wait until the Sell recommendations end and then sell, but I am not going to wait a month to see that signal.
Hence, my interest in the Multiplier. I am trying to develope a method to use it for timing the market. I have already written about buying only when the Multiplier is above 1.00, and this works fairly well -- it has a lower Avg Cost Per Share, but doesn't buy as many shares, so it shows a larger profit on a smaller position. I also tried Ocroft's idea, by waiting until the Multi dropped back under 1.00, and then purchased all the shares called for -- it didn't make very many purchases, and the gains were lower because the price, when the Multi went down, went up, so the position cost more.
My next experiment, was to see how SynchroVest did on timing "bottoms". I set up another SS, but used DAILY price data, from 1/2/2009 to 5/1/2009. Almost this entire period, the Multi was over 1.00, but it increased dramatically in late Feb thru early March, and the absolute, highest value was 1.244 on March 9, 2009 ( the "bottom"). I highlighted all the values of Multi above 1.10 and noticed that it dropped UNDER 1.10 on March 12th, and then dropped below 1.00 on March 23rd. Either of those date would have been "wonderful" entry points for IWM (it also would have been good for almost any stock). I also want to try this on the Oct '02 and Mar '03 "bottoms", to verify the timing aspect.
I also want to try this technique for the "Highs" of the market (since we are now at an all-time high) and look for Multi to be at some kind of "Low". Right now, the Multi on IWM is at 0.898, on a Daily SS, so I've highlighted those days for being under 0.90. I will also try this on the highs of 2000 and 2007.
Bob
LC,
Sorry to keep pestering you (you don't seem really interested in my project), but you know more about Synchrovest than anyone else I'm aware of, so I'm going at it again.
I've already told you that in my IRA Account, I try to TIME the market moves and enter ALL-IN and ALL-OUT, but that I'm looking for something a little more long-term for my taxable account. This is why I was (and am) interested in Ocroft's Modification of AIM, but I actually prefer SynchroVest (from what I know of it), because it allows for regular contributions (which AIM doesn't like).
My primary gripe about SynchroVest, has been that it puts the largest amounts of money in too soon after a sale. A few years ago, I set up a SynchroVest SS for the ETF "SPY" (S&P 500 ETF), with prices going back to June 1995. SynchroVest did pretty well on that rising market into the high in Sept/Oct of 2000, and then the downturn hit, and hit hard. The Investment Multiplier went over 1.00 early in 2001, and, because there was a large pot of money available from the prior sale in 1999, the multiplier was using copious amounts of cash. Even though the Multiplier continued to get bigger as the market went down, there was a smaller amount of cash for it to use, and by the time the market hit its Lows in Oct '02 and Mar '03, there wasn't much more cash than the monthly contribution. (A Multiplier of 1.095 X $50,000 Cash, uses much more cash than a Multiplier of 1.350 X $2,500). So, the Multiplier grew larger, but the actual dollars, spent on SPY, diminished.
My thinking at the time, was that this would be a "disaster" for anyone who had tried to SynchroVest the ETF "QQQ" (NASDAQ 100 ETF), because it has never come close (and probably never will) to its 2000 peak, so the average cost of any shares purchased, likely wouldn't come down enough to see a profit. So, I gave up on it. Then, Ocroft posted on the AIM Board.
Bob
LC,
I had an error in my SS. The gain of the Modified SV for the first leg should be 38.25%, not the 60%+ in my previous post. ( I wondered why it was so much higher than the others)?
Bob
LC,
When I Updated my IWM-SYNCHROVEST SS, I also added a few more columns to try an experiment. I named that portion, The Modified SYNCHROVEST. I have columns for # Shares Purchased, Cost of Shares, Total Shares, Total Cost, & GAIN/LOSS.
I ran it parallel to the 30% SS and used that SS info for the decisions. The technique was to Buy ONLY when the Investment Multiplier, for a particular month, was >=1.00. I would then buy all the stock that the 30% SS had purchased up to that point (that is, the total number of shares purchased by the 30% SS). If the next month was also above 1.00, I would buy the number of shares that the 30% SS purchased for that month, etc. This method allowed me to buy all my stock at the lowest prices only, somewhat similar to Ocroft's method with AIM. If there were months in between that were under 1.00, I just collect Cash, and then would buy the amount of shares that the 30% SS had purchased in that interim, when there was another IM above 1.00. The last several months of each of the legs, had no IM above 1.00, because Prices were rising to reach the 30% Sell Point.
In the first leg, which lasted 42 months, I made only 22 purchases -- I only bought 784 shares, compared to 866 shares for the 30% SS, but the Average Cost was $35.80, compared to $43.37. This caused the GAIN to be 62.45% for that leg, compared to 34.08% in the SS. The other legs were similar, but not as great a difference (2003 was very strong). The second leg, from 2/04 to 5/06, only had two purchases, with Avg Cost = $53.25 for 296 shares, while the SS had 562 shares, at an Avg Cost of $59.14 (this was during the continuing Up Trend in the market).
Have you run tests using this method of controlling Buys? What do you think of this modification?
Bob
LC,
The reason I thought it might be around 9%, was that the individual legs were all above 9%, except the third leg (which was the longest) at about 7%. The SS is set up in the Gain/Loss column, to calculate (((Total Shares*Current Price)-Total Costs)/Total Costs). Is this the proper formula? Then I divided the gain from the Sale by the number of years, in decimal form, ie, 3.5 (for 42 months), 2.25 (for 27 months), 4.5833 (for 55 months), and 2.4166 (for 29 months). But even 6.5%, with this little effort, is nothing to "sneeze" at.
It's true that the 30% Sale was arbitrary -- I don't remember my reasons from a year or two ago for selecting that particular number, probably something I read on your Board. But I do know that IWM is a "general market" ETF (like SPY) and moves slowly, so I was inclined to go for the quicker exit,to ratchet up some excess cash.
My personal inclination toward investing in the stock market is to "TIME" the entries and exits, and go "All-In" and "All-Out". Figuring the Gain/Loss for this type of investing is pretty clear-cut. (This is being done in a Roth IRA trading account, so there are no tax considerations). But stepping-in, over a period of time is a different calculation, and one I do not remember.
But recently, my ability to contribute monthly has improved (I am retired and have learned to live on less than I receive each month), so I am inclined to "look into" an approach like SYNCHROVEST. That is why I updated the SS to current. These savings are going into a "Taxable" account, and I like the idea that some profits will be "long-term capital gains", rather than, only, the "Short-Term" I would be dealing with, following my present "Modus Operandi".
Bob
Clifford,
I think I don't have any idea of how to correctly figure the Profit. If I got a gain of +34.08% on the first leg (3 years, 6 months), and divide that gain by the 42 months, I get about 9.7% per year (that would be ARR, right?), right?
The next leg gained +31.08% (27 months) and gives me about 13.8% per year. The third leg gained 32.33% (4 years, 7 months = 4.5833)and gives me ~7.05% per year. The last completed leg had a gain of 31.58% (2 years, 5 months)and gives a gain of 13.07%.
There is no way those numbers can come out to ~4.4% per year, as per my previous post,so I am using the wrong numbers somewhere.
I would like to see that per year average gain to be, at least, 9%, or so, because my next step is better. I realize that the CASH position does not include Interest or Dividends.
HELP!!!!
Bob
Clifford,
A couple of yeas ago, I made up an Excel SS for SYNCHROVEST, using IWM. I added $1,000 per month (Base Investment = $750) and ran it to a +30% Gain, then sold. The next month, I started a new run. The position used the Closing Price on the first Friday of each month, for entry, and began Aug 2000 and runs up to July 2013. My first sale came on Feb 2004 (+34.08%), the next on May 2006 (+31.08%), the third on Dec 2010 (+32.33%), and the last sale occurred on May 2013 (+31.58%).
As of this month, it has Total Invested as $156,000, with a CASH pile of $243,045.09 and 22 shares worth $2,143.17, for a Current Profit of $89,237.83 for the 13 years. I think that comes out to an ARR of around 4.4% ($89,237.83 /$156,000 = 57.2% / 13). This does not include any interest gained on the Cash portion. I know we haven't received very much interest over the last 4 years, but, before that the interest rates were okay. Please correct my math, if needed. I don't know how to figure the CROR.
In Oct 2002, the G/L was -21.8%, and Mar 2009, was -38.3%, not too bad, since IWM lost nearly 60% in 2008 to Mar 2009.
Bob
Clive,
Thanks for this post -- I have used the idea of 1/3 the normal funds in the 3X Leveraged ETF, for a little more than a year now -- but I couldn't remember where I had first seen the idea.
I use this procedure as a "Catastrophic Stop Loss". If something were to happen that caused me to no longer be able to exercise control over the Portfolio for some time period, two-thirds of my funds would still be "relatively" safe. Four years ago, when my dependent Mother, died, I lost much of my "focus" in the market for nearly 18 months. She died in July 2009 and you know what would have happened to my lifetime savings if I had still been "Short" the market from Feb 2009, when "we" began being helped by Hospice.
The point I am trying to make here, is that I didn't have to be "incapacitated" in any physical or medical sense, to lose "functional" control. So I very deeply appreciate your introducing me to this strategy.
I tend to invest similarly to the pattern described by Ocroft -- all in and all out. So if something happened during the "all in" phase, it really could be "all out"!!!
I have observed, like Ray, that how much gain is achieved in an Up Trend is determined, primarily, by the "Steepness" of the slope. If it is very steep, much more than 3X will be realized, if it is "flatter", it may barely make 3X (like June to Oct 2012) with IWM/TNA (8.85% ~ 27.2%).
Thanks, again, for the suggestion.
Bob
Tom,
Can you Update the v-Wave Chart, please? Is there a way for me to download the chart, so I can keep it current whenever JDerb posts the info?
Bob
Conrad,
I was reading some of Don Carson's old posts about MACRO AIM, just following the "replies" chain, when I came across one of your posts on the Advanced Automatic Investor site that Mark (aptus) runs -- post #210 from Sept 14, 2002. In that post you write about a method of improving Vortex, suggested by Bert Post that you called Quantum Leap.
As I read through the post, I kept seeing Ocroft's method of buying into a stock, and wondered why you had a difficult time understanding his method. The terminology you used was a little different -- "I put the Buy on Hold (Market Order in the freezer)...now if the stock recovers, say 5%...I take the MO out of the Freezer and execute the MO."
Your post was about 7.5 years before Ocroft made his ideas known. He wrote about using AIM signals to "stack up" his potential Buys and an AIM reversal to initiate the actual Buy -- you (and Bert) used percentages to activate the Buy Orders and put them "in the Freezer" and a 5% or 10% reversal to actually execute the orders. Same, Same to my mind.
Interesting,
Bob
Ocroft,
My apologies. I do remember (after being reminded by your post) that you used the 10-8-5-4-5-8-10 model and that you have previously written that you would sell out if the issue got back to it's original (for your AIM project) price. I think I was focused too much on the 20% profit aspect.
As to your last point about SPY falling from $154 to $74 before there was an uptick sufficient to begin buying, there was a significant Uptrend from March to May '08 and a lesser one in July to Sept '08, which seem, on a chart, to have been enough to end the Buy advice. If they didn't, perhaps the downtrend was severe enough to build up a large "Residual", as Conrad is want to mention, which must be negated to get the $0.00 Buy Advice.
The difference of the closing price of SPY on 2/29/09 to 3/31/09 was about $5.59, when you would have purchased SPY. The difference of the closing price on 3/31/08 to 4/30/08 was $6.29. Why the smaller amount was sufficient to give $0.00 Buy Advice and the larger amount was not, I have no idea.
But your comment about anyone buying SPY at that time having a "field day" is right on the mark. And that is how many who try to "time" the market justify their methods.
Bob
Adam,
Ocroft doesn't buy SPY at $152.34, he starts the AIM program on SPY at $152.34. His first buy is at $126.66, his second buy is at $114.05, etc.
His statement that he, "didn't pretend to buy, I simply AIM the monthly action and delayed my buys until an AIM upturn occurred" suggests that he has altered the process a little from his original description, but the overall pattern is still the same. The selling pattern is also slightly altered, hinting that he is selling at AIM directed Sell points, but he still sells the entire position at the turn down. In this way, his style seems VERY similar to Steve's LD AIM.
Unfortunately, from my point of view, this is a luxury of "backtesting" -- he knew it was the downturn because of hindsight. In Nov 2007, when SPY turned down and then went most of the way back up, no one could be certain that the Uptrend was over. He would not have known to sell his remaining shares at that time -- it is possible that this sale did empty his holdings and there would have been no more possible sales in the future, even if SPY had continued to climb. This he doesn't make clear.
Hope this helps,
Bob
Praveen,
I was somewhat puzzled when you first posted this message and said that you were buying as a "contarian" move because of all the "gloomy" news stories. I was puzzled because I would have thought that the contrarian move would be to wait and buy FB after it had fallen and most traders didn't want anything to do with it.
If I remember your system correctly, you take a relatively small, but consistantly sized, position in many stocks (say $2,000 each and 30, 50 or 100 stocks over time) and hold for a year, then re-balance or get rid of a stock at that time. Do you use any other type of stop loss method? I think, if I were using your system, I would trust the method entirely and not use any Stop Loss. A total loss (unlikely) on one stock would not be a very large percentage of the portfolio. But I may very well want to not allow too large a loss on a stock like FB, which it seems you took on largely as a "gamble".
I do like the idea behind your system.
Bob
Conrad,
I agree with you that it is, essentially, TA. I also agree with you that there are many other methods that could be used to acheive the same purpose and, no, it isn't clear why he uses AIM for this, rather than another method.
I am personally convinced that it has to do with his "Comfort Zone" toward investing. Using AIM for TA is more of a "MACRO" approach, once a month check after initially finding the "candidate" mandates that the moves, both Up and Down, are significant -- not just in Price movement, but also with regard to Time. I, on the other hand, would have a difficult time checking only once a month after the purchase. I would be inclined to check every day until it either got to the Target of 20% or started to fall again (then I could go back to the once-a-month routine). The less time the money is in the market, the less overall risk.
I believe the reason he does not put the full $20,000 in at one time is to have additional funds in case the stock does fall further. He has stated the if that were the case, he would continue to AIM (I assume the "Virtual" AIM) the stock until it finally turned around and reached the point of the 20% gain, then he would sell everything.
Your comment, "The fact that a Buying opportunity at the Dip Price was missed is a different issue, and can be dealt with by using other methods.", is entirely correct, but, again, of no consequence if my assumption about the "Comfort Zone" and "MACRO" approach is accurate, because he is only looking for that "20% Gain" and doesn't care if it is the "FIRST" 20% or some 20% segment from the middle of the move. It is the same reason he is not trying to get "out" at the exact "TOP" either. He believes that choosing only the best quality stocks he can find at that low area of their price range, over a significant time span, gives him his best opportunity to make that 20% in a "repeatable" way.
Anyway, that's how I interpret his method.
Bob
Ocroft,
Yes, I believe I do understand your method, and I believe Clifford (LostCowboy) also understood it from your first post. Tom, too, seemed to "get" it. That doesn't mean that any of us would try to copy it, we each have our own "investing personality" and I have appreciated seeing how you express your's.
I see Tom as an investor, in for the long run, and your "hit & run" style doesn't fit his investment goals. Clifford would also be in for the long term, but sees his style as consistantly "stepping in" over a long period, hence his interest in "SynchroVest" and all things DCA.
I,on the other hand, am neither a trader nor an investor -- I am a saver. I have been a saver since my first job in the late 1950's. The father of a baseball teammate was the banker for my parents and he showed me how and why to "ladder" saving's certificates and then CDs (very similar to Clive's posts), so I have been doing that for over 30 years. I have never "tapped" into those funds, but simply rotated them as they came to maturity, so they have accumulated quite handsomely over the years.
I have never been "wealthy" or had a high paying job, but, like the fellow in Licello's book who saved money while on welfare, lived well within my means. I never bought a share of stock until 2000, when the downturn began. In 2002, I began to DCA quarterly into CMO and NLY (both are REIT stocks and both pay an annual dividend currently of about 13%). Both of these companies have withstood the ravages of 2000-2003 and 2007-2009 and I have confidence in them for the future.
So, the relatively small amount of money I am now placing in the stock market (aside from those two, which are long term) is basically "Casino Money", as a friend of mine calls it. With that money, I am also "hit & run", hence my interest in your method.
One word of caution about your stock selection criterion: Read "The Big Short" by Michael Lewis for an "eye-opening" indictment of the competence of the raters at both S&P and Moody's. You may want to heed Tom's advice about learning the ValueLine system, as a backup.
Wish you well,
Bob
Conrad,
I wasn't trying to comment on the inner workings of AIM, only on how Ocroft utilizes AIM to determine his entry point.
As I understand the AIM process, when the price recovers enough to overcome the Residual Buy Advice, the Buy Advice is, at that point, Zero ($0.00). There is no need for a further increase in price to overcome the Min Buy because there IS no Buy Advice at all.
Remember, his system is based, first and foremost, on selecting the highest quality stocks so he can have some assurance that they will recover from what ever drop they have endured. He is looking to generate a gain of at least 20% on the transaction, and then he is moving on to another candidate. He is not holding a "core position" nor is he interested in holding the stock any longer than necessary to acheive the 20% gain. In this sense, he is not an AIM investor, but a trader who uses AIM for timing the stocks action.
STEP 1: Let's say, for example, that after the close of the market on the first trading day this month (July 2, 2012) he looks at the S&P list of A+ rated (Quality Rating) stocks and finds there are 40 stocks rated A+. He looks at each of these stocks on a chart and eliminates all that have not had a "high" within the past year and have since fallen from that point. That means all the eliminated stocks are either at their high or very near their high for the past year.
STEP 2: Now let's say there are 10 stocks that fit his critereon for an established "high" and a descent following. He then sets up a "Virtual" AIM for each of these at the high price, feeds the monthly (first close of the month) price into AIM for each month since the high, and , again, eliminates each stock that has not generated an AIM Buy Advice signal by that July 2 date. That means the price descent had to be great enough to get out of the AIM hold zone.
STEP 3: Now there are only three stocks remaining. He is still running the "Virtual AIM" he set up at that stock's high price. Each of these stocks would have generated Buy Advice in June, at least. One of these remaining stocks (ZYX) has generated Buy/Sell Advice of Zero ($0.00) on July 2, 2012, the other two have generated Buy Advice for July, so he will check them again on Aug 1st.
STEP 4: He now needs to make a decision about entering a trade with ZYX. Remember, it is presently Rated A+, even after a descent in price significant enough to get out of the AIM Hold Zone. If he decides to buy ZYX, he enters his order to purchase shares in a dollar amount equal to the total dollar amount in all the Buy Advice to date. He will generally be buying more shares than AIM would have purchased because he is buying at a lower price. He may decide not to purchase the stock, because there was only one Buy Advice incident and he didn't think the probabilities were there for his desired 20% gain, or for any other reason that seemed valid to him.
STEP 5: He finds the price at which his order was filled, multiplies that price by 1.2, and any time the current price (when he checks) exceeds that "Target" price, he sells all his shares. He then looks for another stock to run the same system on, using both the original funds plus the profit from this transaction (compounding).
I don't know, exactly, his procedure for a Selling decision. I know he has posted at least once that he would sell out if he had two consecutive Sell Advice periods and many times that he was looking for that 20%. I also assume he would be using "Average Price" to calculate the 20% gain if he had multiple buys. The idea in Step 5 is just the simplest method I could think of to acheive his 20% goal.
Sorry for such a long reply, but I believe that all the calculations and manipulations you are thinking about "within" AIM are of no consequence or importance to his process -- he is only using it as a "Timing Device".
Respectfully,
Bob
Hello Everyone,
When I look back over all the messages related to Ocroft's Methodology, several issues keep coming up.
The reason I am replying to this older message is because it contains answers to two confusion issues initially raised by Conrad. Namely: "Why bother to look at the PC change, since you already know that Price has gone up?" and "The Licello "flaw" of Residual Buys".
The reason you feed the price info into the spreadsheet, even when you can see the price has reversed, is because of the "Flaw" -- Residual Buy Advice. Ocroft's method does not allow him to "actually" enter a position until the reversal is significant enough to override the residual and eliminate all buying advice. No buying advice means that PC will not be affected, therefore, it is time to buy. Residual buying advice would, theoretically, change PC.
Hope this helps,
Bob
Adam,
If I remember correctly, Ocroft only looks at the highest quality stocks he can find -- A++ rated (when I have looked, there have been fewer than 50 at several different times).
He then looks at these stocks on a chart and finds those that have a rather strong descent from a recent High. He does a "pretend" or "virtual" standard AIM buy at that High point and then checks it each month to see if AIM is directing further buys (those monthly checks could well be within the timeframe of the chart he is looking at).
For instance: today he found XYZ had a recent High in January 2012, he would make his "virtual" buy as of Jan and then check the chart in Feb, Mar, Apr, May, June, and July to see if the descent was sufficient to generate AIM Buy signals. If AIM did generate Buy signals, he would check again in Aug and every month thereafter until the AIM Buy signal stopped. In his "pretend" AIM, he would report all the Buy signals as having been obeyed.
But the first monthly check where there was no longer a Buy signal, he makes his decision about whether to enter this trade (XYZ may no longer be an A++ company or there may be more candidates that he prefers). He is not "committed" until this point. If he decides to enter, he then makes a trade that is the equivalent to ALL the AIM directed trades to that point in time. If the stock continues to go down from that point, he follows the same procedure again, if it goes up, he eventually will completely "Sell Out", NOT do AIM directed sells and not retain a "Core Position".
There is no likelyhood of the stock continuing to go up, as TooFuzzy suggested, because he is only looking at stocks that have come down from a recent high point -- he is looking back in time to find the candidates. He is not looking today to find stocks that are at a high today, he is looking today to find stocks that had a high in Jan or Feb and have since gone down.
Ocroft, please correct me if I have misunderstood your process.
Regards,
Bob
Adam,
Forgive my interruption of your exchange with Ocroft, but your last paragraph grabbed my attention. You state, "My solution to this problem of deep-diving stocks, is to AIM ETFs. With ETFs there's no need for filters. Unless you're doing very specialized ETFs they're unlikely to make big drops and stay there."
Have you ever looked at a chart of QQQ? It is one of the "premiere" ETFs. It was issued as an ETF in 1999 and reached a high of $117.75 in March 2000 (the index was well over 5000). It reached it's all-time high since that date in April this year at $68.25 (the index just over 3000). Over twelve years and only about 60% of the HIGH, and not very good prospects of ever coming close to that high. Perhaps Ocroft's concept would also be suffering from Buys during that descent, but I think his average share cost would be much lower.
I don't know if he would agree, but it seems to me that he is really applying "Vealies" to the Buy side. If you don't have any trouble with Tom using them in a strong UpTrend, why would there be any problem on the Buy side in a strong DownTrend?
Regards,
Bob Smith
TF,
I suppose you are correct; I would have thought the same about Focus Morningstar, but I was wrong. The ETFs are issued by Focus Shares, based on Morningstar Indexes. But I was also wrong about the spreads.
If I look up these ETFs during the trading day, the spread is only about $0.03, so this is not a real problem. My error was that I was looking at them after trading hours, when adjustments were being made. Even IWM and Spy showed spreads of twenty cents or more then. So this was my mistake and I apologize to the group for wasting their time.
Tom, the guy I talked to today at Scottrade also recommended using limit orders, especially since they, too, are commission-free.
Bob
PS: I compared FOS to IWM on a Performance graph and they track as close to identical as can be. Also, FOS is about 1/3 the price of IWM ($25.44 to $83.06)so theoretically, you could buy 3x as many shares, but not have the leverage problems.
TF,
Yes, they are VERY thinly traded. They are issued by Focus Morningstar. These are based on the various indexes. For instance, FOS is a small cap fund similar to IWM, but the Bid/Ask spread is $24.60/$25.60.
Bob
A word of caution; I am with Scottrade, which also has ETFs @ no commission, but the spread between the Bid and Ask is very high--about $0.70 to $0.75. Why should I avoid a $7 commission only to pay $0.70 a share higher? If I buy 11 or more shares, I'm behind in the game. Also, the volume on these ETFs is very low. Maybe there is no free lunch.
Bob
ETF word to the wise,
I read the article with a skeptical eye because I have been invested in some of these Ultra Long/Ultra Short ETFs. I looked at a Performance Graph of the three ETFs (SRS, IYR, URE) and found that his info was correct, BUT, if he had done the same analysis on Nov 20, he would have seen IYR = -61.17%, URE = -89.44%, and SRS = +132.63%. Does this lead to a different conclusion? Yes and no.
To me, either conclusion is misleading because they are both based on the result as of a particular moment in time. If you look at that same graph with only IYR and URE, you will see they are pretty well correlated. URE and SRS show their contrast, but some of the slippage is noticeable from June '08 to Sept '08 when IYR came back to the 0% line.
Another problem for me with the article is the fact that the author is a financial consultant and operates a fee-based service. I don't have anything against that, but his fee must be added to the expenses of whatever funds or securities he puts one into (slippage). How would the total of all those expenses compare to the inefficiency of the Ultra ETF? If he had simply shorted the IYR, wouldn't the interest charged for the short been higher than the inefficiency of the ETF? Do any of his clients have a positive return YTD? Did any of them have a gain of +132% on 11/20/08?
All I'm saying is that you need to understand the nature of the particular security (s) you are working with. Period! If you don't, it's your fault! If you look at one more Performance Graph of IYR, URE, SRS from the first day of existence for the two Ultras (Feb 15, 2007), you should notice that IYR and URE are smoothly in the downtrend from the first week onward with a consistent gap between them. SRS is much more volitile, but consistently above the zero line.
I think Ultra ETFs are worth considering.
Regards,
Bob
P.S. I am sorry I don't know how to post the above mentioned graphs.
TooFuzzy,
Speaking as one who participated in >>pretty much beat to death the discussion of using inverse funds as the cash reserve or the inverse (pun intended) of AIMing an inverse fund and using the regular fund as the cash reserve<< but not as one who has >>decided it just wasn't worth it<<, I am somewhat underwhelmed by the subtlety of your suggestion.
Aren't you saying in effect that at a certain point in the next upwave, you would take the accumulated cash to buy the inverse fund, which would then act as your cash portion until it began accumulating cash on its own, when you would have a new AIM program with the inverse fund but only a B&H fund on the original (since AIM does not sell out the core holding and there would be no cash portion)? I could see that as a method of transferring from one AIM fund to another, but don't see any real value otherwise. Wouldn't you be better off to just use the inverse for your cash (even if you waited until the VWave reached that 60% (approx) level before you bought into the inverse fund)? That way you are essentially using AIM as a Trend Timing System, but not as an AIM system.
Even though I had success this year using double inverse funds from Dec '07 to Oct '08, I was just lucky and I would advise against using the 2x funds in general. We do not know where the market will go from here -- if it goes into a trading range for the next few years, you may find the 2x much too sensitive. The same would be true of the 200sma in a trading range -- you could see a lot of whipsaws (especially with the 2x). As Tom Veale has posted elsewhere, AIM is at its strongest in a sideways market. If the whipsaws are are strong enough, AIM is at its best, while Trend Timing is at its worst. If we continue the pattern established in the 90's (Strong UP), 2000-2003 (Strong DOWN), 2003-2007 (Strong UP), and 2008 (STRONG DOWN), using AIM Trend Timig or the 200 sma to time the market will reap great rewards, but how can we know?
Small Cap Stocks usually lead the market both up and down. IWM peaked in July '07 and SPY/QQQQ peaked in Oct '07.
Regards,
Bob
Clive, thanks for the lesson.
As I mentioned in my first post, I have been trying to follow a Trend Timing system. The ETFs that I held with this system were IWM, EEM, GDX, and PXJ. This gave me positions in US domestic, Emerging market, Gold mining stocks and Oil stocks. Some what diversified until they all started whipsawing near what turned out to be the market top. I couldn't take it anymore and closed those positions.
I didn't know it was near the market top (anymore than I knew in Oct, 2000), but I decided to try a much slower reacting timing system and started looking for a clear indication (via the 50/200 SMA xover) as to which direction the market was heading.
In December, SPY had fallen below the 200 several times and had Lower Highs 3 times in a row, so I bought 2x Inverse ETFs. Just dumb luck! This time good luck. But what about the future--will I still want to "bail out" when the going gets tough and hope to get lucky again or consider a different system?
I have come to the conclusion that I am NOT a trader (that is why the whipsaws got to me so quickly) and I'm not certain that I am even an investor (the appeal of the Timing System), but I know that I am a Saver. I can see AIM as an enhanced CD over enough years to stabilize its output. My savings can be used in a Synchrovest or Twinvest program until that builds to another AIM program. I do not have a high paying job, but I live modestly and save between 25% and 30% of my net. So I really don't need one of these "You can make really GREAT returns using our system" seductions--I don't even spend all the money I get now. But I was still seduced!
So, for now, I will sit in cash until I can gain a real, heartfelt comfort with AIM and will then invest according to the recommendation of the V-Wave and play it by-the-book. My initial post was primarily theoretical and I am paying heed to Toofuzzy's admonition about improvements.
Regards,
Bob
Hi TF,
I think I am more like a "deer in the headlights". All this Government injection is confusing the heck out of me, so I placed an order to sell all my SDS (2x Inverse S&P 500) and TWM (2x Inverse IWM). I meant to keep them until the 50 SMA crossed the 200 SMA, but I decided that I would rather sit it out for a little while. It may be the bottom or it may continue to fall, I have no real clue either. I have made some good money since 12/11/07, but am not at all confident I understand what is occurring in the market. That is why I am renewing my interest in AIM. It, hopefully, will allow me to be invested even when I am not so LUCKY. I am also re-reading Lost Cowboy's posts on Synchrovest and a modified DCA (Post 42 of Systematic Investment Group on I-Hub) because next Spring my financial situation will allow a regular monthly investment.
Regards,
Bob
Toofuzzy,
I'm sorry I falsely attributed the "trailing stop" idea to you. I had read in some of the old posts that you were interested in the concept and I read on "Caps Trading Diary" that he named your interest as a spur to his "Milestone" development.
As far as "ANYTHING I change with AIM I end up doing at the wrong time", I wasn't thinking of changing AIM midstream, but considering this plan for beginning an AIM program. "So whatever investment system you pick I recommend that you stick with it and don't change it". Good advise.
Regards,
Bob
Clive,
RE:If AIMing the 1x Long ETF and using the Double Inverse for the Cash portion had those negative attributes, would doing the opposite reduce those effects?
This was a bad question on my part. Of course, there would be no negative compounding on the 1x Long ETF -- only on the 2x Inverse ETF. By doing the opposite, I would actually increase the negative aspects by adding the second inexact ETF. Both the 2x Long and Inverse ETFs (2x and 1x) would have this problem. It is my understanding that the 1x Inverse ETFs are not perfect reflections of the underlying ETFs; that is, they do not go down or up the exact amount that the primary ETF did each day.
So the proper question in my mind would be, Would the negative compounding be noticeable? The only legitimate comparison for the 2x Inverse (or Long) would be to what the Cash component would actually achieve--not to the 1x Long ETF. Isn't that why many of the posters are using other substitutes for Cash and even Mr. Lichello wrote about a scheme to enhance the Cash side of the equation.
I believe my suggestion would be equally neutral, but an unnecessary complication when compared to Earthpet's plan. Equally neutral because I would be AIMing the 1x Inverse ETF--not comparing it to the 1x Long ETF. AIM would treat it as a "stand alone" investment and would not recognize the inherent inexactness because it doesn't compare it to the 1x Long ETF. And more complicated because it would be turning the market upside down, similar to interpreting the VIX.
Regards,
Bob
Tom,
Here are some I look at.
IWM >> UWM (2X)
SPY >> SSO (2X)
QQQQ >> QLD (2X)
DIA >> DDM (2X)
Regards,
Bob
Thanks, Clive for your response.
The backtesting I mentioned was not sophisticated in any way. I had just subscribed to TC-2000 (Worden Bros) software and looked at long-term charts to find stocks that had a price history of many ups and downs. I then went to the first day of data available on TC-2000 and "bought" $10,000 of stock for Buy&Hold and $5,000 of stock for AIM. I then kept track of it on a 13 column pad, checked the AIM function at every day's price, and performed the action requested by AIM.
I don't recall for certain, but believe the data went back to 1992. I followed each step through to the "current" data for each of about 15 stocks. This was very labor intensive. Then I simply compared what B&H and AIM were worth on that last day for each of the stocks. The conclusion was that B&H outperformed AIM because the total value was higher at the end. No IRR, no ROCAR, no consideration of how much of my Portfolio was at risk at any particular time, just higher total value at the end of the test. I did this during the span of Aug-Oct, 2000. Six months earlier or six months later may have led to a different conclusion.
As I stated, I was a beginning investor (naive). Didn't even know the 90's had been an extended Bull Market (ergo: my comment that years later Tom's Vealie and I-Wave made me reconsider AIM). It told me that my backtesting didn't take the "Bull" Market into account. I believe that Mr. Lichello concluded something similar with AIM-HI.
Regards,
Bob
Hi TF and Tom,
Thanks for the welcome! TF, I really wasn't trying to suggest an "improvement" to AIM, but stating my gut reaction to Clive's reply and explanation to Earthpet. If AIMing the 1x Long ETF and using the Double Inverse for the Cash portion had those negative attributes, would doing the opposite reduce those effects?
Probably an hour after writing that post, I read the exchange between Clive and Tom (#70-72) on the AIM UK board and probably would not have written at all if I had read that first.
Although, speaking of improvements to AIM, two ideas that made me reconsider using AIM as an investment strategy were Tom's development of the "Vealie" and the "I-Wave". The backtesting I had done in 2000 showed that Buy&Hold beat AIM, but I wasn't sharp enough to figure out why or what to do about it (beginning investor). Another idea that appealed to me was the suggestion to consider using trailing stops for buys and sells to reduce the number of transactions and increase the magnitude of those transactions. I think it was made by Toofuzzy.
I wasn't thinking of leveraging, necessarily, even though that was implicit in the post by Earthpet and the reply by Clive, and so was a legitimate response by you. I really am not interested in emulating the Investment Banking industry "Leverage Up" debacle, so thanks for the caution.
Regards,
Bob
Clive,
So, why not AIM the Single Inverse ETF and use the Ultra Long as the "Cash" part. Won't the AIM function cope with the adjustment "shortfall"? The Ultra Long ETF would act like cash with a LARGE dividend. That would make this the "near peak" time of the market and you would be taking most of your funds out of the Single Inverse ETF (selling) and into cash (the Ultra Long, at just the right time). And any effect of inflation would actually boost (not diminish) the cash side.
This is my first post to this board, so I hope I'm not stepping on anyone's toes. I am intrigued by the AIM concept (I read the 3rd Edition in 2000 and more recently, #4), but my investment style thusfar has AllIn/AllOut, timing the market trends. Not great success so far, but a good opportunity coming up soon, I hope. I have been reading the messages on this board for the past several months and am very impressed with both the knowledge and attitude of all the posters. This is an excellent board to follow.
Respectfully,
Bob