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Thanks for the advice Toofuzzy. I will handle options like I would handle dynamite - with caution.
Vitali
Toofuzzy,
Quote:
"it is possible to lose 100% every 10 years"
Can you please explain, under what circumstances this would happen?
Downside must always be considered. I abesolutely agree with that. That's why I want to understand the worst case scenario with LEAPS.
Jeffrey Weber says his strategy involves rolling over the long-term options every year. By doing this, they never expire. So if the options are out of the money at one point in time, they will eventually go in the money if we keep rolling them over long enough. Because the underlying stock will go up eventually, assuming we picked a quality company.
Vitali
You're right Toofuzzy. I have not traded options yet.
I agree, options are a very risky and speculative investment. Maybe a good way to learn them is to allocate a small amount to them for practicing purposes.
Vitali
Thank you Toofuzzy for the explanation for how to use the V Wave.
Vitali
Toofuzzy,
Thank you for the clarification. Do you avoid putting all your cash into bonds because bonds cannot be immediately converted into cash for the next stock purchase? They are not as liquid as cash?
Vitali
Toofuzzy,
Yes, options do carry much greater leverage than stocks. You said 100% loss is possible. For this to happen, one would have to close all of their positions at the bottom prices. Otherwise, those are just paper losses. Right?
Or does the risk lie in the stock price lingering at the bottom for years, and you can't roll over those options, because you've run out of cash?
Vitali
Toofuzzy,
"With AIM I don't worry about my allocation to cash/bonds. I let Aim take care of it."
I didn't understand you. Do you let AIM decide what ratio of cash to stock you will initially allocate?
Vitali
Toofuzzy,
Quote:
"All the " improvements " to AIM get into the subjective territory you want to avoid. Stay with AIM by the book."
I suspected that this was the case with optimizing or curvefitting the historic stock data. Optimizing does give you impressive past performance results. But as wel all know, history never repeats itself exactly. Future performance will suffer.
I agree with you, we should stick to the original AIM forumla. But the stock to cash ratio should be altered as needed.
I'm not clear on how to interpret and implement the v-Wave indicater for cash allocation. Can someone explain it to me please?
Vitali
Tom, I like your description of that lifestyle.
Vitali
Thank you for the resource Tom!
I've heard of Jeff Weber. He seems very knowledgeable. I was just looking for a second opinion or confirmation from this community that LEAPS are a good investment.
Vitali
AIM with long-term options LEAPS
Does anyone use LEAPS (Long-term equity anticipation securities for AIM investing? They are special kind of options for stocks that don't expire for two years. They can be rolled over forward every year so that they will never expire. They move in price 4-5 times as much as the underlying stocks do. LEAPS create a lot of buying and selling cycles for AIMers, which in theory gives potential for higher volatility and thus more profits.
Has anyone used LEAPS successfully? How do they compare to 3X leveraged ETF's for example? They look very interesting.
I haven't seen anyone talking about them on this message board.
Vitali
Thanks Tom for explaining this point to me.
Vitali
Toofuzzy,
I've tried momentum investing/trading in the past and lost money. This strategy forces you to use subjective judgment of the market's direction. Subjectivity and emotions I believe are the weakest link in investing.
AIM investing is complete opposite of momentum investing. It doesn't rely on subjective judgment, and it is contrarian. Everybody on this message board has given me enough evidence to believe AIM will work.
Vitali
Thanks OldAIMGuy for the explanation!
"Each buy cycle lets AIM expand the value at risk at the time of the next sale. (this is what happens when AIM adds 1/2 of the buy value to Portfolio Control)"
Is this what automatically happens when using the classic AIM formula?
Vitali
Thank you Clive for a thorough investigation of the Buy and hold strategy.
It appears I was wrong. Markets spend a lot more time in corrections and crashes more often than I thought. This fact alone makes it more logical to not use the Buy and hold strategy. Because it's more probable that I would not pick favorable entry and exit points. AIM strategy makes a lot more sense now.
I too would have picked the Portfolio #2. The end result is very similar to portfolio #1, but the draw downs are a lot smaller.
Vitali
Hi Toofuzzy!
Thank you for good advice about setting up a portfolio.
"Even AIM with just the S+P 500 will do worse in an up trending market. But the losses will be less on the way down."
Market crashes or corrections are not the norm, but rather an exception. They rarely happen. And when they do, prices always recover. Who cares if the TEMPORARY losses are more on the way down? We'll just have to tough it out.
Has anyone done a statistical analysis that tells what gives better long-term returns across meny sectors/industries, Buy and hold strategy vs AIM?
If we have a long-term outlook, maybe it is financially more productive to deploy a buy and hold strategy?
Excellent post Clive! Being one's own investment advisor is a very complicated matter.
"Question is should you pool your cash reserves, or not?"
I tend to think one should not pool their cash reserves. I've heard that some ETFs can become unlisted or worse - go out of business. Imagine if you did pool your cash. You'd be in more trouble than you can fathom.
Thanks Toofuzzy. This is good advice. From now on I will stop worrying about running out of cash.
Thanks for this post OldAIMGuy. It will be useful.
Thank you for the long lecture Clive. I'll have to re-read it several times for it to sink in.
Vitali
Toofuzzy,
"you could always buy with 50% of remaining funds. You will never run out of money ..... But you will never use it all either."
Then I'll just split the last remaining buy order by 50%. By this point most of my funds will have been spent.
"In the meantime, while you are hoping to reinvent the wheel, I hope you are investing NOW."
One has to be comfortable with the investment plan before they commit their life savings to an strategy that they will live with for the rest of their life, more or less.
The one thing that still bothers me about Lichello's AIM is that you never know at what price point your cash reserve will run out. Or at what price point all of your positions will be sold off. Or is there a variation of the algorithm that gives you this info. that I don't know about?
Good idea. Thanks OAG!
I agree Toofuzzy.
Perfection is the enemy of productivity.
Clive, you gave me a lot of food for thought. Thank you for that.
You confirmed my suspisions about predicting stock's price range, which is impossible. What if we constructed a scale that reduces buy orders infinitely smaller the lower the price drops. Then we'll never run out of cash. And if our prediction of the bottom is incorrect, we'll still be buying at those lower levels, albeit very small amounts.
We could do the same thing on the sell side. Has anyone tried that before?
Vitali
Thank you Clive and OldAIMGuy. Clive your example hits the nail on the head. This formula is useful specifically for the purpose of figuring out how much cash should be invested at any given time for a specific equity. That's what I was going for. Pure AIM by the book does not answer the question what percentage of cash should be invested for each stock. I don't think one ratio should apply to every situation, stock/ETF. Each stock's price range is different. And that's why, in my opinion, we need to allocate different amounts of cash for every equity.
Do you know of a better way to do this?
Thank you AIMStudent and Tom for your input. I've programmed this formulat into my spreadsheet and it worked great.
Does it make a big difference whether you use log scale or linear scale to figure out the percentages? I've noticed at the bottom of the range the difference can be substantial - 19 points between the two scales.
Hi everybody! I’m building spreadsheet to help with AIM investing. I'm trying to figure out the price percentage in relationship to the trading range. Maybe for someone on this board this problem would be trivial. Your help would be greatly appreciated.
Imagine I have a price range that consists of two values. 4 is the bottom of the range and 15 is the top. 4 is 0% and 15 is 100% of the range. Let's introduce a 3rd value. It's somewhere in between the range. Let's say it's 7. How would I express number 7 as a percentage in relationship to that range. How far is 7 from being at 100% of the range? What is the math in calculating this?
Thanks for your help,
Vitali
Thank you for the reply Tom! It's unfortunate that Don Carlson has passed away so soon. I wish I could have asked him some questions about his scale trading technique. Does anybody on this board practice scale trading?
Tom, I've sent you an email about that spreadsheet.
Thank you for the insight Toofuzzy.
Hi everybody! My name is Vitali. I'm new to this board. I started studying AIM techniques and stumbled upon an old article or post about Low-Down AIM located here: http://web.archive.org/web/20120614135045id_/http://www.aim-users.com/aimlodown.htm
It was probably written by Steve "The Grabber". What really caught my attention from this article was at the bottom where he talks about Don C. who " has created a spreadsheet which more closely follows the MyWay method of trading."
His spreadsheet creates a buy scale and a sell scale. Based on your cash and your desired minimum order size, it gives you all the buy orders all the way down to your predetermined bottom level, where you will completely run out of cash reserve.
Conversely, for the sell side, the spreadsheet calculates the scale/ladder where selling will occur on the way up to full liquidation.
This method of investing really resonates with me. I like the idea of knowing in advance, before commiting to an investment strategy, where exactly buying scale/ladder will occur during the price decline. And at what price level exactly my cash reserve will be exhausted. I also like to allocate equal portions of cash on each buy in the scale.
For the selling phase I want to achieve the same effect. I want to know in advance where my last position will be sold. After determining the top trading range for the price, I want to build a scale/ladder that starts selling my position gradually, at equal portions until the price reaches the top, where my last position will be sold.
My question is: Does anyone know where I can get Don C.’s spreadsheet? Is Don still around on this board? How can I get in touch with him.
I am not very technical in math and Excel. But if I’m unable to get his spreadsheet, I will have to build one myself. Or maybe one of you guys has a similar spreadsheet built already?
Thanks for your replies in advance. I wish you all success in trading and investing.
Vitali