Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
As ever, thanks JDerb
Here's a chart of another form of cash % indicator. Its formed by taking the S&P composite (price only) and dividing that by the CPI index figure (so a real gain share price). That's then fed into AIM (as the stock price value), with CPI being the AIM's 'cash' reserve amount.
50% initial cash, 10% SAFE, 60% Vealie, 5% of stock value minimum trade size settings, reviewed once monthly and all trades matched to what AIM indicated.
Basically that's comparing the real (after inflation) share price gains with inflation. Generally stock price only values might pace inflation over the longer term, but in a volatile manner. With dividends added in on top that provides an overall real gain/benefit from having held stocks.
As of recent, a AIM indicated sale occurred, which raises the cash reserve from 46.5% to 49.76% as of more recent (diversified cash reserve figure).
Nice to see some confirmation of sorts of the vWave's suggestion of increasing cash reserves.
Regards. Clive.
PS worth noting the near 70% cash reserve peak in late 1929 and the 0% cash during 1932 (Wall St Crash era).
Hi Adam
Hi Tom
Hi LC
Hi Tom. Fantastic effort.
Firstly, sorry to those that aren't familiar with (now somewhat ancient) AIM-users history. Just ignore this posting.
On a separate but related note to the vWave, IIRC, V/L PE is the median of forward earnings looking. Since yields have been suppressed by QE that's somewhat distorted RV (PE+T-Bill). Initially I had opted to use inflation in lieu of T-Bill yields, but subsequently decided to drop that side of things and just look at PE alone.
Historically whilst different to IW for the manner in which I'm calculating, the differences don't seem to make that much of a difference to actual rewards (similar outcomes if you align/weight to one or the other).
Calculation of the 'RV' figure :
Initially I calculated from a 1982 start date up to start of 1987 the average of the PE together with the standard deviation. Each week that is updated/extended (new/different average and stdev as new weeks are added into the historical set, such that the more recent values reflect the average PE from 1982 and stdev in those values).
Given the average PE and standard deviation of those values, calculate a stochastic i.e. ( current - low ) / ( high - low ), where high is 3 standard deviations above the average, and low is 1 standard deviation below the average.
I'm a Ben Graham follower in believing no more than 25%, no less than 75% stock (cash) is appropriate, so I account for 25% minimum and add on the above stochastic value multiplied by 50 (i.e. up to 50% more on top of that 25% core amount). 75% cash is however perhaps just a bit too much and I've further refined to limit the maximum to 66% i.e. if the figures is >66 then set to 66.
Unfortunately the data in the above chart cuts of at 2000 as I lost my V/L PE data after a PC failure some time back (and when the backups I had didn't restore). So I've a big hole between then and more recent years.
Best regards.
Clive.
This link is a better fix. Makes the message area full width, as well as a tip for how to remove underlined text pop up ads.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92933285
Hi Neko
Rather than buying a fund such as PRPFX, have a look at AIM'ing the Permanent Portfolio assets individually, but using leveraged ETF's.
Investing half the amount you would have invested in the underlying and investing the other half in TIPS (TIP ETF) rebalanced once yearly will generally compare quite closely to 100% in the 1x (underlying).
AIM HI settings (20% cash, 20% sell Vealie) will generally compare to 100% buy and hold. Longer term the risks tend to be similar (20 year worst cases), whilst 100% tends to have better best cases. Whilst 100% buy and hold is conceptually better, in practice applying AIM combined with using leveraged ETF's can be better.
If instead of 100% stock, you opt to AIM a 2x version, and allocate 60% cash reserve to that (40% in 2x), that's like holding 80% stock exposure in the 1x. Whilst many perceive leveraged ETF's (LETF) as potentially providing twice the gains (losses), in practice that only holds over a single day and longer term LETF's might generally just track the 1x gains, but do so with twice the volatility. To account for that higher volatility AIM settings of
60% cash
10% Min Trade Size
20% Buy Safe
30% Sell Safe
60% Sell Vealie
60% Buy Vealie
MONTHLY REVIEWS
are reasonable IMO.
With LETF's the manager in effect adds more exposure after a rise and reduces after a decline. That makes the volatility variable. In a trend a 2x ETF might have 2.5 times the volatility of the 1x. As a 20% decline needs a +25% gain to get back to break even, setting Buy safe lower than sell safe is an OK choice. As LETF's are twice as volatile, doubling up SAFE is also a OK choice. Buy and Sell Vealies at the initial cash reserve amount help to steer AIM back towards that amount in general.
As examples, the first chart in the image below is for SSO (2x SPY) and that yielded a 9% annualised compared to 6% for SPY
The second chart is for UGL (2x GLD) which yielded a 10.8% annualised compared to 8.5% for GLD.
The factor to note is that whilst a trend persists the two tend to compare quite closely, but when a reversal occurs AIM tends to pull ahead (decline less).
Generally whilst rebalancing a 2x/TIP 50-50 once each year or so will tend to compare to 100% in the 1x, by using AIM instead as the 'rebalance manager' it tends to do a better job, and the additional benefits, given time, are significant.
Clive.
MAKING IH USABLE AGAIN
The new 'improved' display format implemented by IH isn't liked by all
See http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92932466 and maybe the http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92932874 follow-up message for how to possibly change that.
If you have AdBlock Plus installed http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92932721 provides some information as to how pop up's when you hover your mouse over underlined text might also be disabled.
Fantastic, thanks elbiatcho1
I installed https://addons.mozilla.org/en-US/firefox/addon/stylish/
restarted FF
Tools, Add-ons, Extensions, Stylish and selected Write New Style, gave it a name of IH and dropped your code in and voila!
I've disabled Greasemonkey (Tools, Greasemonkey, and unchecked Enabled) and things look good.
Disabling underlined word pop up's (solution)
Just remembered how I was rid of them :
Adblock plus, Filter preferences, Filter subscriptions and add a filter subscription to EasyList https://adblockplus.org/en/subscriptions
Thx Paulie
Install greasemonkey http://userscripts.org/about/installing. You'll have to stop/restart your browser
Then navigate to http://tinyurl.com/mju9foy and it will prompt you to ENABLE AND INSTALL the script
I don't know if it works with MAC - maybe http://mac.softpedia.com/get/Internet-Utilities/Greasemonkey.shtml ?
Hi Steve,
For those with AdBlock adding a filter of
##div.mright
will block the right side content.
The message box space however doesn't expand to fill the empty space :(
Austerity and deflation stinks
Hi Steve
Have a look over at the questions and answers board. There's a blitz of complaints about the new format
http://investorshub.advfn.com/The-Question-and-Answer-Board-IHUB-504/
LS7550
My avatar/username reflected my reading of Alfred Winslow Jones at the time of registering with IH. Proclaimed to be the founder of the modern day hedge fund, he'd typically be long 75% stocks that he perceived to be good value, and short 50% stocks he perceived to be poor value. Long/Short 75/50 -> LS7550 became my choice of IH userid.
In today's world, I guess to reflect such a asset allocation you could hold perhaps something like 25% in SDS (double short SPY) and 75% in small cap value.
If you apply AIM-HI to the 75% stocks, generally that might broadly track 100% stock exposure, but do so with some cash (less risk).
For the Short side AIM, a whopping 90% cash reserve, 20% Min Trade Size, 0% Buy Safe, 20% sell Safe (buy resistance) and 90% Buy Vealie applied to SDS appears to have worked quite well over recent years. With TIP (TIPS ETF fund) for 'cash', since July 2006 that short stock AIM yielded a 2.5% annualised gain, compared to -21.7% annualised decline in SDS (buy and hold).
Instead of a drawdown chart, the image below presents a 'riseup' chart, that reflects the maximum subsequent gain for each day/period up to the present date. i.e. for each day, the maximum subsequent value compared to that days price (monthly granularity).
The indications are that for that short AIM, up (down) to the 2008/9 crisis lows, the short AIM gained around +35%. Which is a nice inverse correlation to how some stocks/funds declined -50% over that period. With 75% exposure to funds (long stock AIM) losing perhaps -50%, but 25% exposure to fund (short stock AIM) gaining +35% combined such a portfolio might have been down around -29% from prior peak to 2008/9 crisis lows. That's less than 60% of the all stock loss, whilst still capturing 75%+ of all stock gains (as AIM SDS provided a +2.5% annualised gain over the total period tested).
What swayed me to currently look at a AIM short stock was that I've just been comparing several benchmarks and one stood out in particular for having done exceptionally well during the 2008/9 crisis period, and upon delving deeper it appears that they did so due to holding a relatively small amount in Options - which appear to have performed very well during the 2008/9 period. I've posted the above observation here as it may be of general interest to others.
Nice and sunny here in London today. Off now for a bit of cycling exercise.
Clive.
A friend called the other day and asked what he should be buying now. He thought there would be big bargains available.
Currently I have NO buy signals, most of my investments are at or above their 26 week eMA values and farther away from their "next buy" than their "next sell."
So, sadly I had to tell him I didn't have any great ideas right now.
Hi Tom.
In the absence of anything else, some, as a risk hedge, in long dated inflation bonds (TIPS) - directly bought (not a fund).
In some historical crises times, treasury yields have been suppressed to relatively low levels, either due to threats by Treasury's to buy such bonds to keep yields low, or by actual Treasury's buying bonds (as of more recent). After a while, inflation had then 'unexpectedly' spiked, into double digit levels where it stayed for a few years, eroding the value of most other assets/investments (highly negative real yields).
Inflation bond prices move in reflection of changes in unexpected inflation and long dated versions of those more so. Purely as a portfolio hedge, having some assets that spike sharply up in value should such 'unexpected high inflation' occur when nominal yields are artificially kept low are possibly worth holding purely for such risk hedge qualities. Bought and held to maturity current US 10 year versions are paying 0.43% real http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield so whilst an overhead compared to other real returns, at least its not an overall cost.
I don't know what the US longer dated modified durations are, but might be up at 10 levels (10% price change for each 1% change in (real) yield). Such that a little, might go a long way if/when nominal yields are (kept) low and inflation is raging at double digit levels.
If/when real yields move positive, such bonds will lose capital value, but might be continued to be held to maturity for no loss assuming a relatively light allocation that you don't mind bearing.
Debt erosion via low nominal yields (perhaps 2%) and high inflation (perhaps 15%) for several years in a row can erode debt substantially - at the expense of investors/savers, potentially wiping out years of investment/savings. Some insurance against that risk is akin to bearing the cost of house insurance. Whilst you hope that you wont have to claim, if you ever do need to claim you'll be glad you had the insurance.
Opting for Classic AIM (50-50) or AIM-HI (80-20) is more a mental accounting thing.
If you had $100,000 and liked an asset allocation of a third each in stocks, gold and cash, you could AIM that as a stock AIM of initial $26,667 stock with $6666 cash (AIM HI stock), another $26,667 gold and $6666 cash (AIM HI gold) and have the remainder in cash deposit accounts.
If the gold AIM subsequently exhausted its cash reserve then in effect AIM is saying - whoa! I've perhaps invested enough into gold already and I'm not going to buy any more unless you indicate to me that its appropriate to do so (i.e. add some more cash into that AIM, perhaps by having taken some profits out of the stock AIM).
It had scaled up to $33,333 invested in gold, the same as what buy and hold would have loaded into gold at the offset, and had flagged a warning to suggest that it needed a manual inspection.
You could have opted to AIM other variations/choices of AIM settings, but as an overall general choice 80-20 (AIM HI) is a good one (near optimal I believe Lichello suggested).
50-50 AIM, perhaps with $25,000 stock, $25,000 cash in a Stock AIM, $25,000 gold, $25,000 cash in a Gold AIM, might achieve similar overall portfolio results, but runs a greater risk of having added a total of $50,000 into gold before it raised a warning flag (exhausted cash reserves).
With pooled/shared cash reserves across all AIM's, a single AIM deeply diving could drag down the whole portfolio to unacceptably low levels - with no warnings being flagged.
Ideally when one AIM HI is flagging a warning (exhausted its cash reserve and indicating further buy signals), you want another AIM that has moved counter to that and is relatively rich (inversely correlated), as that way you can opt to profit take out of the winning AIM to add to the losing AIM if you opine that to be appropriate.
Unlike Lichello who suggested that when you add or remove funds from an AIM you should do so in equal amounts from both stock and cash (withdraw $1000 total by taking $500 out of stock, $500 out of cash) I'd suggest it would be more appropriate to take (add) proportional amounts from (to) stock and cash. If for instance stock value was at $8000 and cash at $2000 and you were withdrawing $1000, then take $800 from stock and $200 from cash (and revise Portfolio Control down by the $800 amount of stock value removed).
As a guide, for that BRK AIM if you leave everything else as-is, but reverse the share price order - as a form of downward trending share price model, then the AIM resulted in
So in upward trending with zigzags, AIM-HI matched buy and hold. In downward trending AIM lost less than buy and hold. Under more straight up share price conditions, AIM would most likely lag buy and hold.
Lichello's last incarnation of AIM, AIM-HI with just 20% reserve is a good choice. If you were looking to hold $50,000 of stock exposure then instead of buying $50,000 of stock and allocating another $50,000 cash to the AIM, by buying $50,000 of stock and allocating just $12,500 of cash reserve to the AIM for one the combined stock and cash value ($62,500) is more likely to track a similar reward to having invested $62,500 in stock (i.e. as though £12,500 that was in cash earned a comparable return to stocks), and for another your risk is lower ($62,500 should the stock crash and burn instead of $100,000 had 50-50 AIM been used).
Or another option might be to allocate $50,000 to AIM-HI, start with $40,000 stock value, $10,000 cash, and potentially achieve similar rewards to having bought and held $50,000 of stock, but with less risk. I believe that is more along the lines of what Tom does (belated birthday wishes by the way Tom).
Month Traded $
Jan 1997 -195.20
May 1997 -414.99
Jun 1997 -400.68
Jan 1998 -339.15
Feb 1998 -431.45
Mar 1998 -766.66
Jun 1998 -400.94
Sep 1999 219.86
Jan 2000 370.36
Feb 2000 465.34
Sep 2000 -460.99
Dec 2000 -435.49
Dec 2001 -479.96
Nov 2003 -663.20
Jan 2004 -607.62
Feb 2004 -536.89
Oct 2006 -854.21
Sep 2007 -563.91
Oct 2007 -878.12
Nov 2007 -795.21
Dec 2008 677.56
Jan 2009 608.60
Feb 2009 1052.04
Jan 2010 -1259.53
Feb 2011 -968.66
Feb 2013 -1163.31
Apr 2013 -906.88
May 2013 -1059.33
RE: Single stocks
Hi Toofuzzy.
AIM can be managed without even knowing a cash reserve figure. The cash reserve record is primarily to prevent injection of too much additional amounts into a deep dive. Once cash is exhausted AIM takes on no further risk with that AIM.
For someone with perhaps $300K who opts to run 33 AIM's of $10K each, the maximum risk per AIM is 3% of their total portfolio value (assuming all equally weighted).
If you AIM funds, often they will correlate (all up or down together). For single stocks the correlations are a lot less consistent.
Arbitrary example (UK stocks data)
Whilst one might crash and burn and lose 3% of total portfolio value, another might reach for the sky and double, treble, quadruple or maybe even be a ten-bagger+ and more than compensate for the loser(s).
The bigger risk with stocks is that they might all correlate to the downside at the same time. Such as during 2008/9 when nearly all stocks dived, with few exceptions (MCD IIRC about broke even).
Individual stocks can provide higher volatility and potentially more rewards (look at Steve's AIM's for example). In turn the exposure to that risk might be reduced and more cash held (outside of AIM's) to lower the portfolio volatility/risk, but in so doing lower the potential reward. As the vWave indicates, for single stocks you should perhaps look to hold more in cash than for AIM'ing funds.
Portfolio Theory
For those who have accumulated a sizeable amount and are in retirement/drawdown and more interested in capital preservation in real (after inflation) terms than wealth expansion, consider this portfolio
Stock price only (excluding dividends) might generally be expected to pace inflation over the longer term, but in a volatile manner. Ditto gold.
Long dated treasury inflation bonds (TIPS (US), Index Linked Gilts (UK), Real Return Bonds (Canada) etc). might be expected to pace inflation and perhaps pay an additional amount.
Long dated treasury bonds generally might be expected to lag inflation, but pay interest that compares to inflation. Ditto Cash.
5 assets that each generally pace inflation, but with varying degrees of volatility. Stocks additionally pay a dividend that generally also rises with inflation so if that amounts to 5% and with equal amounts of each of the above 5 assets, that's somewhat like each of the assets earning a 1% real (after inflation) benefit.
If you have five assets that each achieve similar rewards, but do so with varying degrees of volatility, rebalancing back to equal weightings periodically will provide a higher reward than not having rebalanced - as you'll profit take when high, add (cost average down) when low. A similar characteristic to rebalancing between a high volatility asset such as stocks with a low volatility asset such as cash.
As an example consider that over a period of time when inflation was 4%, stocks were down 20% one year and up 35% the next. (0.8 x 1.35 ) = 1.08 i.e. a 8% gain over two years, which is 4% each year, which compares to 4% inflation. i.e. just paced inflation over those years in total. Blend that in equal weighting with gold that perhaps moves the complete opposite, up 35% one year, down -20% the next and both individually just paced inflation. Mix in three others that perhaps just achieve 4% each and every year (pace inflation) and if you rebalance that set back to target 20% each weightings once each year, then overall that portfolio (model) provides a two year 11.1% gain, which is 3.1% more than inflation (approximately the whole portfolio yearly outpaces inflation by 1.5%). Add on the 1% mentioned earlier = 2.5% real in total.
With long dated inflation bonds and long dated conventional bonds, their volatility is much higher than shorter dated. Typically short dated have low price volatility, high yield volatility whilst longer dated have low yield volatility, high price volatility. Whilst buying/holding long dated bonds at current levels might seem somewhat mad, you just never know and as a example in 2011 such bonds were the best performing asset in the UK, gaining around +25% (capital/price only). Such long dated bonds tend to have volatility that is comparable to stocks and gold, which in turn means that rather than perhaps a 1.5% uplift from volatility capture (rebalancing) the reward might be more like 3%. Again add on the 1% (shared stock dividend) = 4% real total.
If you assume stocks yield a 6% real reward, then if the above that holds just 20% in stocks achieves a 4% real, then for 67% of all-stock reward you are exposed to 20% of all stock risk.
Rather than using constant weighting however and periodically rebalancing all five back to equal weights, if AIM is used instead then it will only take profit (top slice) out of an asset when it is appropriate to do so, and will only add to another (add low) when appropriate. With constant weighting you might top slice out of one (good performer) to then add to others whether it was appropriate or not to top up those holdings at that time.
Top slicing can yield quite substantial amounts of cash being generated. For instance most years one of the above five assets will typically see a 20% to 30% gain, whilst the other four as a collective set might generally break-even. 20% of funds generating a 20% to 30% gain = 4% to 6% of total portfolio value being top-sliced relatively frequently. Add on stock dividends, cash and bond interest etc. and the cash 20% allocation often expands by quite a lot each year when all of those income streams are dumped into the cash pot. Cash starts the year with 20%, earns perhaps 4% (in more normal times), is provided with another 4% from stock dividends, another 4% from bond interest, another 2% from inflation bonds, and that's a bit like cash having earned a 14% interest rate.
Generally that portfolio rises in value due to capturing some price appreciation, some income and some volatility capture gains/rewards, so its diversified. The assets also have a degree of inverse/no/low correlation which helps stabilise the total portfolio value over time. Yet for the relatively low risk, the rewards are modestly good.
Scale that up towards greater risk (and reward potential), and you might utilise alternatives to the above assets. Tom's choice of a portfolio of UB&H assets for instance might exhibit similar variations in volatilities and correlations, whilst potentially yielding higher overall rewards (more stock heavy).
AIM compared like for like wont provide any magic. But as a tool that assists in managing an appropriate choice of assets, AIM helps you get one step closer to managing the portfolio successfully over the longer term.
Where AIM helps is that its a good record management method. Trade management record for 30 stocks (AIM's) of something like one line for each showing Portfolio Control, # Shares, Cash, together with a separate more detailed record of individual holdings, trades, values etc, makes managing such a portfolio easy.
For main portfolio records, this general (not AIM specific) spreadsheet is quite handy (Excel spreadsheet)
http://www.jfholdings.pwp.blueyonder.co.uk/jfh/PortfolioTracker.zip
On the trade worksheet for each row you enter the stock and whatever action occurred, bought, sold, dividend received etc. as and when those events occur, and then on the Current worksheet you just enter the stock (EPIC) that corresponds to the EPIC used in the Trade worksheet for whichever stock(s) you want to inspect, enter the current share price in the Current Price column and that summarises all of the buys, sells, dividends, gains etc.
Don't forget to make backup's or keep a duplicate paper version - just in case your PC dies.
For AIM trades just keep paper records of PC, #Shares, Cash reserve on a single sheet of paper/card that's kept in your wallet.
There are other spreadsheets such as http://www.financialwebring.org/gummy-stuff/download-stock-prices.htm that can assist with downloading share prices for multiple stocks. Alternatively load that previous Portfolio.xls spreadsheet into googledocs and that supports populating share prices directly into the spreadsheet using something like
=googlefinance("LON:ISF","price")
that imports the current price for London Stock Exchange ISF Fund (FTSE100 index tracker).