is retired now but still kicking like a horse!
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Hi Tom, you made some valid points!
Your response on the subject of changing AIM settings made me think of earlier discussions I had with you on Control System issues and it reminded me of a control system problem I ran into as a greenhorn engineer in a Proctor & Gamble Pulp Mill in Grande Prairie (Alberta) in 1976. The problem there was caused as a result of not adjusting the settings on a Level Controller. My Short Story on this became a bit too large for directly placing it here. . .I made two 2-bit Short Stories of that experience on how I solved the Control System problem in that mill:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78440453
and
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78440802
Changing settings of a control system has nothing to do with emotion or predicting the future . . it is simply a matter of adaptation of the response for a system that encounters different external disturbances or when the system itself is changing.
As my story demonstrates a system can operate reasonably well with wrong settings, but then it might not operate at its best, and when it encounters a “curve” in the road the “car” will run off the road sooner than when the settings are "perfect". . .To get these perfect settings one has to adjust the settings frequently with changing conditions. . .This is used in some cases, as you know better than most on this forum, with the application of automatic adaptation of the control system parameters in an control algorithm.
Regards,
PS
H.A.L.T. in Holland is an institution that puts people that have been convicted of small crimes to work in community services jobs, without pay
Section 2 on changing the settings of a Control System.
Continued from Section 1
The 10” Liquor Feed Line had a 6” Equal Percentage Control Valve to control the liquor flow to the Chip Chute (CC). . .Upon inspecting the design specifications I concluded that this valve was more than big enough and it operated at less that 50% open at the design flow for 750 TPD. . . add 50 % flow capacity. . .which would get the valve to be 50-60 % open or so. . . and the mill would run at 750 + 375 = 1125 TPD and there would be room for running to 1200 or maybe 1250 TPD, on that 6 inch valve. . .and if that would not be the case then an 8-inch valve would be required at the very most. A 10” valve would have a flow capacity of 278 % of the 6”valve capacity and the Huge Chip Cute Pump would not be able to handle that much flow. I advised the CO of this and he said:
“I would tend to believe you on account of what you have already achieved, but the Instrument Man says the 10" valve would solve the level control problem, so we are just going to replace it. . .we have a spare 10” valve so it will cost only cost some time to install it in a few days. . .the work is planned already for the next Maintenance Stop.
I was freaked out a bit by this. . .The Instrument Man obvious knew nothing about Control Systems and Flow Systems. So, I took the initiative to look at the 6” valve in more detail: The air pressure driven actuator was fed via a Spool Valve. . .for most of you this will be irrelevant, in regards to how that works, but the information I got out of the specifications was that the air feed and the orifice diameter was 1/8-inch and that was good enough to let enough air through it to operate the valve. . and do so fast enough. . . to allow the multi million Dollar digester to run at 950 TPD. . .a tiny hole of 1/8 “in diameter!!!!. So I looked at the Spool Valve and it was about 7 @ 8 mm thick and I figured this. . .the Liquid Level in the Chip Chute changes too fast for the valve to provide enough response to adjust the Flow variations fast enough. . .so the level goes too high or too low. . .suppose now that I make that 1/8” hole to be a 1/4“ hole. . .it will allow the air to enter the Actuator at a theoretical 400 % greater rate. . .and this will make the actuator respond left & right a great deal faster, maybe ever 300% faster. . .THAT should solve the problem!
To have more ammunition to convince the CO that the 10” Bal Valve would NOT solve the level control problem, I went to the Instrument shop where the 10” Fischer Ball valve was standing ready on the table for installation in 1-1/2 days. I asked a technician to hook up the Fischer Monster to an air supply at the same pressure as was used in the Mill and I tested this valve on an instant ON- sequence withy the valve 100% closed. It took ~10 seconds to 100% open. . . .
Slow as hell . . . but that is not the main issue. I checked how far the valve was open for a flow representative for 1000 TPD and I discovered that the valve would be less than 10% open. . .and at that point the Flow Curve for dQ/dx was almost horizontal . . . (x=1 is 100% open). . .a tangent of almost 0. . .and THAT was the critical thing. At the target flow at which the control would have maximised symmetric dQ/dx flow deviation response. . .the dQ/dx-line would be about 45 degrees instead of about 2 degrees at it was at 10% open. The result of installing the 10”valve would be that the Digester would not be able to operate at all, and that the entire Pulp Mill would stop running until the 6”valve would be put back!. . .I showed the CO the drawing I had made of the Equal Percentage Flow Curve for the 10” valve. . . .and that this valve would take 3 to 4 seconds to open enough to create a positive dQ to prevent the pump from running dry and about 1 second to close it to prevent the liquor from overflowing the mixing vessel. . which would prevent flooding the Digester Basement. The 10” valve would solve only 1/2 of the problem. . .This operational and control information was the result of knowing and understanding the details of the system and what would result if the settings were very wrong. . . As long as they were running on a “straight road” @ 750 TPD everything was fine. . .even the “wrong settings” of the control system allowed the production of 750 TPD but with my adjustments of the settings of the control system the Mill could run at 950 TPD easily.
The CO saw the light I showed him: “Holy Smokes. . .I believe you. . it is obvious that you are right. . .we ought to educate our the Instrument Man on how System Control ought to be done! I will cancel the Work Order on the big valve, but how do we get the 6” valve to move faster in such a short time?”. . I said: “That’s a Piece of Cake. . .you give me authorization to let the machine shop people make a new Spool Valve with 1/4” orifices. . .I will make a sketch for it. . .and you write out a Work Order that this Spool Valve is to be installed in the 6”control valve Actuator, using a 1/4” supply fitting on the air feed tubing. . .I am 100% sure the internal tubing from the Spool Valve to the Actuator piston is large enough to make this work for perfect Chip Chute Level Control, with the settings on the controller we have now, or even tuned a bit better”. . .The CO appeared convinced:. . .”Damn. . .I will get on it right-away. . .it makes perfect sense to me”. . .And so it happened! Making the new Spool valve was easy and was done quickly, and its installation during the Stop that night took no more than 30 minutes total. . .I was told afterwards.
In the morning after the Maintenance Stop at 8 AM I entered the Control Room and the “boys” there were sitting there doing nothing, leaning at ease in their chairs an looking content. . .the Digester was on line. . .purring like satisfied cat, not a thing was stirring. . .
The red trace on the Lever Controller Chart was gently moving up and down between a less than 1,5 cm range. . the Digester was running at 950 TPD. The boys welcomed me and gave me the Thumbs Up Signal. . .I was pleased I made it so!. . .I fine-tuned the controller a bit more . . .especially the D-knob I tweaked. . . and the range of the up-down level movement reduced to. . .I kid you not. . about 7 @ 8 mm. . .the red trace average very slowly moving a bit up/down indicating that the level average showed only a small cyclic deviation form the Set Point . . . Evidently the proportional, the integral and the derivative settings were virtually perfect. Then the CO appeared for his day Shift at 8:30 and he first checked the TPD rate which stood at 950 and then came right over to the level controller where I was. . .he looked at it and said:
“Surely you are faking this somehow. . I do not believe this can be what is happening in the Chip Chute in the Basement. . .”
I assured him that it was reality that he was looking at. The little 2-bit Spool valve, plus my fingespitzengeful http://en.wikipedia.org/wiki/Fingerspitzengef%C3%BChl had done the trick! The CO said then: “This is a tremendous achievement! I would not have believed this was possible if I had not seen this with my own eyes. . .my compliments. . .We are going for the 1000 TPD today!”
I went on with my normal work there for the Vancouer Consulting Company I worked for and some time later I inquired how “things were going” with the Digester and was told they were operating at the fringes of 1250 TPD. . .without making any more fundamental changes to the basic system. . . Maybe they had done a bit more fine-tuning on the Level Controller for the Chip Chute to get to the 1250 TPD, but I have no information on that.
This experience was the Cherry on the Cake for my engineering experience. Many people say things that are not true and when I hear such falsehoods I jump on them to try to make it clear to them that looking beyond the length of their noses to learn more is very useful, but also it makes life exiting. . .one can escape the confines of boring box that one might be in.
This is the Short Version of my story
Chapter 1: My Story on Changing Settings of a Control System.
Response to remarks made by Tom Veale in http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78405650
Good to hear from The Old Man(TOM)once in a while
I remember when I first got in contact with you on this Forum we had a lively discussion on Control Systems in general and that an AIM in fact is control system for investing money in a particular way. . .and a feature of control systems is that they have a number of "knobs" on them that can be rotated left and right by an operator. . .we never had any discussion on why these "dials" were there. . . we both knew why they are there: they are to be adjusted in response to system changes and external influences. I may even have told you about the time I was in the Digester Control Room of the Grande Prairie Pulp Mill in Alberta. The operators had a great problem with the Chip Chute Liquor Level. . .It is the Mixing vessel for wood chips and liquor mixing in order to pump the mixture at high pressure into a huge Kamyr Digester of about 50 m high. . . The CC either overflowed or the pump went dry any time they wanted to “run the mill a bit faster” than it was designed for (750 Tons/day of pulp). Proctor & Gamble wanted to run the mill faster so they set op a De-bottlenecking Program: This was the Instruction to all the operators: “Make everything run faster and when things go haywire and break down. . fix the bloody haywire and keep making the mill run faster again until Hell Freezes Over. . .I was the luckiest engineer on earth, almost fresh out of school, to be assigned to that mill . . .It was not my function to be in that Control Room at all. . .I just roamed the mill now ant then out of curiosity. . .Each time the Chip Chute (CC) System went off-line sirens went of. . .this was normal MO there. . .all the operators were turning knobs left, right and back on all the knobs they could find and I thought: “Hey this is a great place to be. . .things are happening here!!!” The Chief Operator. . .a young guy of I bet no older that 28 or so, explained to me: “This Mill is designed for 750 TPD and we got it running at 900 now but we have reached a bottleneck: the level of the CC can not be controlled and the Chief Instrumentation Man says the Level Controller can not handle it. . .look at this red level trace on the chart. . .it looks like an elevation profile of the Rocky Mountains just to the east of us here. . .we can not fix it”. I asked him: “Would it be OK if I try to adjust the settings to tune the controller a bit?”. . .the guy said: “ No problem. . .you could not make it worse that it is. . .The Chief Instrumentation Man has tried it too but he could not get the level stabalised”. So, I went at work on this PID Level controller. . .I was a greenhorn on this. . .it was the first Level Controller that I had ever faced outside of the university! . .So, I looked at the knobs, my fingers were itching to turn something. . .Knobs are made for Turning, and that’s what I will make them do, I thought . . .(Nancy Sinatra was standing behind me. . I swear it. . . urging me onwards. . .her boots were drumming their beat. . .in my head).
”Hey Man look at this”, I said, “The D-knob stands at zero. That’s not good at all. . .at zero it does noting! D stand for Derivative!” . . .The Chief Operator (CO) came looking and said: “I’ll be damned! What the hell is a derivative for???? The Chief Instrument Man has set it probably at 0. . . he has fiddled many times with this controller. . what does it do?”. . .I saw the writing on the wall. . .these people missed a bit of control theory, so I began to see the possibilities for me to let Nancy Sinatra push me further. . . An entire pulp mill De-bottlenecking Project would fall into my hands if I had my way. . .they obviously depended on me . . .So I did what came natural to me and explained: ”A derivative feature on a controller is a “rate of change” sensor for a variable in a process . . .in this case it is for measuring the time rate of change of the fluid level in the Chip Chute Level. . .most people would call it the “velocity” at which the fluid level rises or falls. Thwe controller would adapt the control valve opening time-shift to make it open more or less at the right time”. . .
”You got to be kidding me!” said the CO. . “how do you know all that?”. . .At D=0 it does probably not measure anything and do noting!”. . .The CO was obvious not an idiot. . .that was promising. . . So I told him that I will try a few things with different setting on the PID-controller and I did so. . . and in a short time the red line on the controller chart was already less “jittery” than before. The CO said: “We were told not to touch these knobs, but I see that you have already achieved a better level control setting. Obviously the fluid velocity changes in the CC are great and the Control System does not react fast enough to correct the flow if it is wrong. . .I got to leave now, my shift is ending. . .do what you can. . . you have my blessing!”. . .and he left. . . I felt like King Salomon. . .I had the Power to make things better. . .or to make a bloody mess of it. . . I had a multi million Dollar Kamyr Digester in my hands! It might as well have been The World . . . I felt like a Little God. . after all, I was a greenhorn facing to attack my first Level Controller in Real Life. . and I went to work! . . .A few times the bells started ringing when the P-knob was turned to much and the system went OUT. . .it was not en emotional reaction. . .it was simple a trial and error level control experiment. . .getting the fingerspitzengefühl of it in my hands. . .No problem. . .the boys at the other knobs knew how to get the Digestor on line again. . .everything was normal. . .this happened routinely every time when they turned the knobs.
I adjusted the PID-settings in a great many variety of relative positions and got to a situation at which the red liquid-level-trace jittery had been reduced to a 3 cm narrow range on a scale of +/- 5 cm chart. . .The D-knob stood at some non-zero position. Then, I started fine-tuning and got to the point the red up-down trace had about a 2 cm bandwidth and I went home. . . it was midnight. The next day I went to visit and the CO was as happy as a pig in shit: “I am amazed at what you to have achieved last night. . .You must have magical power in you hands. . .we are running at 950 TPD and all is well and the liquor level is stable, but at 975 TPD the system knocks itself out again. . .we want to go to at least 1000 TPD now. I have given a Work Order to install a bigger control valve. . .the 6” Bal Valve in the feed line will be replaced by a 10" Fischer Ball Valve in a few days".
I did a bit more fine-tuning but could not get the trace jitter much narrower than the 2cm range. . .I thought: “I have to check out that 6”ball valve . . .A 10” valve in a 10” pipeline is going to be a problem. . . I think.
***************
When we step in a cockpit of an aircraft there are a few knobs to be seen. . .If they were there just for the fun of it and not be connected to anything, then we could conclude that that aircraft is a sophisticated autonomous machine that could fly itself under any weather circumstance, and get to the instructed destination without the pilot doing anything at all. . . .all the knobs would be there only to entertain the Pseudo Pilot so that he would not become bored wile being there . . and not only that the pseudo pilot would only be there to make the passengers feel that they were in safe hands. . .An aircraft without “control knobs” to turn during the flight is an absolute impossibility. . . .ever. . .it must have an active control system(CS) in order to adapt to weather changes.
Any discussion on the proposition of not adjusting the settings on a control system(CS) is completely idiotic and therefore pointless. That is so for a CS in a chemical factory and that is so for an AIM Investment system. If CS knobs would have to be fixed and left alone then anything more that is said about it are wasted words. . .and in that light you would have to conclude that everything that has been discussed on AIM on this Forum, since its inception, on changing the values of a Hold Zone, the SAFE, the Update Fraction other than 0,5 of the PC, and all the other AIM-settings and adaptations that have been suggested to be useful, has been a waste of time. . . and current discussions on the subject would also be just as pointless. . . it would have been meaningless chatter that had no purpose other than to fill the Forum pages with nonsense and to spend time doing so because there was noting more useful to do...If that is the collective consensus of the readers of the AIM Forum in regards to AIM-setting changes then AIM Users might better join a Knitting Club. . .at least they would have something useful to do then.
Why talk about AIM-settings ever, if they are not to be changed? I will answer this with the ending of my Grand Prairie Chip Chute Control System Story.
Continued in Section 2
"You are on a winding road (to use your analogy) paying LOTS of attention (as well you should) when the road straighten out"
Too Fuzzy, with this you have said all there is to say about investing in a fickle Market.
Obviously, you agree with me then
Most of the rest you said is a bit of chatter that hits ship nor wall. . . except this one:
"I will let AIM REACT to market movements instead of trying to predict them".
Of course this makes perfect sense in regards to non-predictable market behaviour . . .The Market has been, at least in regards to almost random individual equity price behaviour, unpredictable for as long as The Market has existed, so it is quite superfluous to keep mentioning that predicting prices is not a wise strategy.
In regards to letting AIM “react to market movements” none of us here, I bet, disagrees with that. . .The point of the discussions that keep popping up here on adapting the settings of an Investment Management Program, in response to market movements, is perfectly in tune with The AIM of any Price Driven Trading Scheme. . .It is purely an additional price-driven management technique, overlaying a simple AIM strategy. If the collective wisdom of all the people on this Forum would be to leave AIM BTB alone as it is and not ever change it’s settings then this Form would be as boring like a Dancing Club with boring members none of which would be doing any dancing. . .It might as well be called a Wall Flower Club then.
When you drive on a straight road and you notice that you have ended up in a curve that will not allow you to keep driving straight you would be well off to adjust The Settings of your driving "management system". . . .If you just let an AIM do its thing without changing the settings you would NOT prevent being caught with your pants down in a "sharp curve".
Some interesting results on my Vortex AIM Penny Stock Demo Portfolio I have been running for 6 month now:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78389235
Here some healthy volatility has created some handsome profits!
Interesting Vortex AIMing resuls on my Dutch Demo Penny Stock Portfolio.
Run time: 16-02-12 to 9-8-12. . . Euro Equities
Number of Penny Stocks = 10
ROTAC Yield = 1121 % . . .based on Time averaged Capital Inlay Base
ROTAI Yield = 5479 % . . .based on Time Averaged Equity Acquisition Base
One of the stocks: Antonov Transmissions, kept cycling between 1 Penny and 2 Pennies;
End prices
8 Stocks were less than 10 cents
1 Stock was 14 cents
1 Stock was 33 cents
ROTAC Yield for each stock
AMT= 1358 %
ANTONIV = 3855 %
NEDSENSE = -22 %
PHARMING = -95 %
ROOD = -37 %
SOPHEON = 9 %
SPYKER = 147 %
TIE.HOLD = 3%
TISCALI.NLNL = -34 %
VIVENDI.MEDI = 43
ROTAC Portfolio End Results in €
Investment Total = 432000
Sum Interest @ 2% = 2009
Equity Value = 457877
Reserve = 512493. . . .CER is close to 50/50
Profit = 537370
PV = 969370
TAC = Time Averaged Capital = Profit/Yield Ratio 537370/11,21
TAC = 47937
I wish I had put in some real money in AMT and ANTONOV
**********************************************************
The effective average capital at risk in the Portfolio during the +6 months of the Run Time is just a little more than 1/10th of the total Investment Inlay. . .meaning that a great portion of the capital was added after the start of the Portfolio when it was needed for the equity acquisitions.
I many cases investors do not have a constant capital inlay and add capital at some later date to the Portfolio when needed. When this is done the Total Capital Inlay is a very poor base figure for calculating Portfolio Yield.
This is the reason that in Vortex AIM the ROTAC Principle for yield calculation is used IF an investor sees the Capital Inlay as The Investment. . . Money is in this application not differentiated from Equity.
With the ROTAI Yield calculation method the money is not considered an Investment until equity is bought for it. . .Only after equity is bought is it capital at risk and these equity purchases are Time Averaged Investments. . .TAI.
With the ROTAI Method in Vortex AIM The Reserve plays no role other than that the investor can see it as a limit for how much money he is willing to invest. The profit for the Portfolio is then calculated on the value increase of the purchased equity only.
In the Vortex program the investor can switch between ROTAC and ROTAI simply by clicking a button!
This is spooky theology
Just when you change your settings the market will change!
Of course that is baloney. . .it would mean that when you do not change the settings the market will not change . . .which would mean that one AIMer that sticks with fixed settings will force the World's Economy to stagnancy. . .hahaha. . .Fuzzy you are clearly a Joker!. . . Imagine the dilemma the market would have when one AIMer changes his setting and another AIMer does not. . .The Market Gods would get heart attacks. . .
The Primary Premise for AIMing is that the trading is to take place as a reaction to price movements. . .that will continually occur. . .The result of this sensible advise is that that one also would be well advised to adapt the settings of his Machine as the market condition change. . .One does just that when one drives a car on a winding road . . . that this is more difficult than doing nothing does not negate that it is a smart thing to at least try to learn how react optimally to market behaviour changes if one wants to increase the yield of his investment(to stay on the winding road), relative to doing nothing. By not operating the steering wheel of your car on a winding road you will cause a disaster.
Adam, the general idea of adapting the trading strategy in response to market behaviour has always been a principal advice of mine(Active Management Overlay on the Aiming Basics). When one sees the prices go into a trading range(TR) it is logical to adapt the settings. In regards to the relation to Holding Zone and Safes in Regular AIM I venture not to say too much. . . the effect of not updating the PC on selling and the effect of the Residual Buy when the price reverses at the bottom of the TR makes the standard AIM rather asymmetric and for me a bit unfathomable(due to not having studied it to death).
As I see interpret I your statement: Making the Holding Zones smaller alone would force more frequent trading within the TR but in order to make there trade advice larger the Safes should be made very small or zero. This would work if there is a lot of up/down movement but the trading cost may be too high for the small trades. . .works for very low cost trading fees.
I would look at it this way rather:
Make the Holding Zone to match say 80-90 % the TR upper and Lower Limits(not necessarily smaller!) and reduce the Safes to increase the Trade Size. This way you realise maximum profit creaming. Then if the price breaks out of the TR you need to adapt again. . .not executing Buys as the price keeps dropping and selling a bit at the time as the price keeps rising(or not selling at all if you are confident on the rising trend, not waiting too long though). This requires abandoning the strategy to only to look at the prices once a month and keep a sharp eye on the "stuff" you bought. . .always being prepared to shift strategy “with the flow”. It requires more time and skill for management though.
As most of you know, AIMing is a development that grew out of concepts such as, among others, for example Dollar Cost Averaging(DCA).
On July 28 in the Financial Section of the Dutch Telegraaf newspaper, Page T25, Manno van den Berg presented a presumably new investment method called Spreading in Time, which is nothing more than DCA that was known for ages already! I felt this article was quite “Old Hat” the author could have done much better by presenting the essentials of AIMing.
The publication prompted me to write about some AIM History again, and specifically I used generic information in it that I had presented in a paper, many years ago, in which I explained the Essentials of AIMing as an ingenious derivative of DCA.
I have posted it in two parts.
It may be of interest to newcomers to AIMing:
Part 1
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78249922
Part 2
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=78251726
In the original Paper I also specifically alluded to Vortex AIMing. . .A Vortex is like a Tornado. . . .Vortex AIMing sucks money out of the market and puts it into your bank account. . .by way of what Tom Veale coined as:
Buying from the Scared. . .Selling to the Greedy
Some AIM History. . .Part 2
The essence of my AIMing Paper was to start with the DCA method as an example of a periodic investment technique with a $ 100/month purchase of shares:
Month/Price/No.Shares
1.......10......10
2.......14......7,14
3.......10......10,00
4.......8.......12,50
5.......6.......16,67
6.......8.......12,50
7.......10......10,00
The obvious result here is that when the price peaks at 14 one only gets 7,14 shares and when the price returns to the average of 10 the value of the equity package at 14 is reduced to 71,40 and that is a loss of 28,6% over a relatively short period!
I demonstrated that this loss due to buying at high prices of a volatile equity is a bone of contention in the DCA Method!
In contrast when the price has dropped to 6 one gets 16,67 shares for his $ 100 instead of 10 and when the price returns to 10 the value of that cheap package has increased to 166,70. . a whopping 66.7% profit!!! This is the great advantage of the DCA Method. The objective is, I made it clear, to eliminate the Disadvantage and to capture the Advantage of DCA.
A slight change in the investment technique would increase the profit significantly. I suggested first that when the price rose to above the average of 10 the investor should not buy any shares but keep the $ 100 in Reserve. Then next month if the price of 10 would return he could buy $ 200 worth of shares!!! He would be on even keel. . .not having lost anything relative to the price of 10. Alternatively, I pointed out, instead of buying for $ 200 worth at 10 he could wait till the price dropped to 8 and then buy $ 300 worth of shares. . . he would get 37,5 shares at a low price and when the price returned to 10 he would have a value of 375 of that package. The benefit of that strategy would be obvious to any reader. Alternatively if the investor would have waited for the price to drop to 6 he would have $400 to buy at 6 -------> 66.667 shares!!!!! . . . and when the price goes back to 10 he would have a package worth 666,67!!!!! In my original presentation I added up the profits for several complete cycles ro show the improvement relative to the DCA, and that was clearly demonstrated.
The profit potential of this technique is obviously much greater than for spending $ 100 every month irregardless of equity price, and any kid would understand it. Having achieved that I pointed out the next possible improvement: The possibility that when the price hit 14 instead of not buying the investor could Sell a package of shares worth $100!!!! . . .Sell High. . . .and he would sell only 100/14=7,14 shares, instead of buying only 7,14 shares, and he would have $ 100 extra to spend if the price drops to below 10. . .He then would, for example, have $ 500 instead of $ 400 to buy at the price of 6. . .500/6 = 83,330 shares, and at a price of 10 this package would be worth 833,33. . .a profit of 83,33 % relative to the buy @ $ 400 at 6!!!!. . .
The selling of a small package of 7,14 shares at a price of 14 has provided for increasing the profit of buying at 6 by 16,67%. . .Selling some equity at high prices is a powerful tool for leveraging the profit due to buying extra equity at low prices. This is The Magic of AIMing!
Showing this basic methodology of periodically selling high and buying low being the essence of the AIM Method made it obvious that for volatile equities in the form of Mutual Funds, or in the form of "safe" single equities, made it clear that this methodology provides great potential for realizing very high returns, relative to simple periodic buying with a constant amount each month, by which the advantage of buying low would be almost wiped out due to continued buying at high prices.
I also made it obvious that the examples were only illustrative and that the investor could adapt the examples I provided to create his own strategy for selling at high prices and buying at low prices. . .That would simply be a refinement to make the method suit the investor's style . . .he could be aggressive in doing so, or be conservative, but this method would retain the extra profit potential of the AIM strategy.
An interesting example of such a "buy & sell" strategy variation, other than Regular AIM and Vortex AIM, are the periodic Investment Plans created by Lost Cowboy. . .see The AIM Users Forum. . . in which the monthly investment values are adapted + and – in response to - and + equity prices, which would create similar “buy low & sell high” benefits that are inherrent of AIMing.
As a closing argument I asserted that it should be obvious to anyone that studies large professional investment companies that they use this periodic “buy low & sell high” strategy almost invariably: When the equity process have inceased for a period of time they sell portions of their Portfolios. . .they call this Increasing their Portfolio’s Liquid Asset Position and when prices drop significantly they buy extra equity and call it an Opportunity Buying to achieve Optimisation of the Portfolio’s Equity Positions. . . .They are careful not to call it AIMing . . .but THAT is what they do: Periodically selling of high priced equities and periodically buying low priced equities
Manno van den Berg pretended to have presented something new for Amateur Investors with his Spreading through Time idea but in fact he presented something already terribly old. He would have been better off to present any one of the AIMing Methods that are used every day by AIMers, and give credit where credit is due.
Some AIM History. . .Part 1
Frequently on the AIM Forums the specifics of the AIM Methods are being discussed. On the one hand this is a logical development for AIMers as in the Investment world the AIM method is not openly considered a "serious" investment method in the professional investment circles. On the other hand is such a very simple and logical system as AIM to create profits with a natural feature of equity prices that is invariably an aspect of any commodity that one can think of: Volatility!. . .The Friend of the AIM Investor. . .even though some people are definitely afraid of volatility when they consider getting into investing.
Considering that Buying Low - Selling High is such an obvious investment objective the really surprising thing is that in the main so few people actually do that as a principal feature of their investment activity. . .It is well known that the bulk of the non professional investors. . .the Amateurs. . .wait far too long to step into the Market, and here I want to quote something The God Father of the AIM Investing, Robert Lichello, has written in his book on AIMing:
"The worst thing an investor can do is not to me In the Market."
Although one can, with the right market know-how, take exception to this wisdom to some extend, it is an excellent observation from the point of view that volatility is the Investor's Friend. . .This has been true since the day that investing was invented. . .a few years ago, when primordial creatures crawled out of the mud and developed into humans. . .they invented the idea of profit by buying goods when prices were low and sold them when the prices were high. . .it was the logical thing to do. . . in a volatile world.
In respect of the above you might join me being surprised at an investment article in the Financial Section of the Dutch Telegraaf newspaper, on July 28th of 2012, which was presented with a heading in large bold letters:
Spreading Througth Time
with sub-heading
Periodic investing reduces the risk of bad timing
as if it was something the writer had discovered a day earlier! I could hardly believe it. . .an Old Topic taken out of an Investment Museum, dusted off and declared to be the Egg of Columbus for investors! In it first various banes of investing like buying too late when equity prices had been rising for a long time and the "impossibility" of predicting when prices were right for buying. . .Obviously the writer addressing the general public as he ignored the fact that many investors were consistently doing that which he presumed to be impossible: Investing with skill so that the buying is done at low prices and the selling was done at high prices.
Clearly the author of the article, Manno van den Berg, had never heard of AIMing and he offered a solution for reducing loses in a volatile market by suggesting that periodic investing was the "sliced bread" he had to offer! Investing in Mutual Funds or Bank Funds with a fixed small amount each month would presumably solve the problem of buying at the wrong time. He suggested that over time when prices had dipped low, and then due to volatility the investor would benefit from periodically occurring low prices if he faithfully continued to keep buying equity every month. . .when the prices are low, he explained, the investor would get extra equity shares and that would handsomely pay off when prices returned to their formal level!!! He ignored to explain however that when prices were high the investor would get less equity shares for his fixed monthly investment and that this would create a loss for these buys, relative to the average equity price.
Obviously Manno van den Berg had no idea he was describing a very old investment method that was already in vogue in the 1960-ties as a standard periodic investment technique , and no doubt it was even used even earlier than that. It would have been proper to at least for him give credit to people that had had developed such a periodic investment style years ago.
When I first read The Money Spinner (Chuck Chakrapani, Toronto, Canada) in 1980 about his unique investment system, that in the main was very much like Lichello’s AIM, Charkripani gave due credit to the developers of the Dollar Cost Average method(DCA in which periodic investing of fixed amount of money was the key feature. Chakrapani also mentioned that Robert Lichello had invented a system that was very similar to his Money Spinner but stated that the Money Spinner was not a derivative of Lichello’s AIM. . .I tend not to believe that. . . . From The Spinner and the DCA and Lichello’s AIM I eventually developed my Vortex AIMing method and then I wrote a paper on how AIMing in general was a clever derivative of the DCA method. The essence of this development was so simple any kid could understand AIMing, and in my humble opinion, it made the book of Robert Lichello virtually redundant. . . .too much dressing-up with irrelevant information to make his publication read like a Story Book, rather than an technical manual, like the Money Spinner is.
See Part 2 for the follow-up.
Hallo Nagpada,
I used to use The AIM idea to start trading real Dollars vs the Dutch Florin via the bank in a simple Dollar Account. . .the exchange rate difference buying/selling was ridiculously low. I made money on the swings even when the dollar lost value steadily. Exchange rate difference was 0,25 %. . .no trading costs.
On an increasing trend the profit was much larger than the value increase. . .again the swings did the trick . . .The AIM principle obviously works. . .one does not have to try it to know that. I used it to get familiar with Practical AIMing
Later this got me interested in Forex with the leverage concept but I did no real investing then. I made up a Vortex AIM Excel with a variable leverage in it. For the Forex I used a free "Play" Account to learn the principles the Brokers used and used Vortex AIM to size the trades. . .I did not stay with it long enough to learn any secrets to winning consistently. . .It was more like a video a game to play with the fast moving rate change.
I am afraid I am not a trading expert. . . too little patience with fathoming how the prices move on such a short scale. . .I find it more challenging to create features for Vortex AIM to make it more flexible and more useful for the users.
I have no answer to you question
Hallo Nagpada,
Re. you AIM Question:
4. All :- Since AIM is a trade management system and is partial to volatility; volatility exist on different levels of time. Is anyone using AIM on a 30min., 1Hr. etc. scale. Has anyone used it or even done a whatif backtesting.
I used to do currency trading years ago but not on such a short time scale. Some time later I developed Vortex AIM. Which basically a symmetric AIM Ratio System with variable Buy and separately Sell Aggression Factors. In the latest version of Vortex 1.26g, I have, because of my interest in FOREX, incorporated Live Currency Pair Exchange Rate. . .updated every minute. . . and with small window in which the UP & Down behaviour is indicated. This can be used for very fast trading of volatile equities. At the moment it is only active for currency pairs but can be used for stocks if one has access to a live stock price service.
I have used back testing for the SPY Portfolio but that was not a “what if” procedure but intended to optimise the SPY Trading. . .but the recent SPY behaviour has remained in a narrow trading range and I have adjusted the holding zones downwards to create trading on the smaller up/down price movements.
Ca you explain what you exactly mean by What If Back testing . . . .I have use the Lichello Series 10; 8; 5; 4; 5; 8; 10; 8. . . . . .This is a What If process. Is that what you mean?
Regards,
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".
Thanks for the detailed outline of what Ocroft is actually doing for selection an optimum Investment candidate. Being sorry is not needed at all!
It certainly is interesting. . .It appears however a lot like TA to me . . .and one can set up various criteria to weed out the funds that do not meet his demands for performance. Without AIM one can spot a significant price reversal by any arbitrary means. . .and at the desirable recovery price Ocroft can invest the full $ 20000 he has allocated to his selected equity. I am puzzled why he needs AIM for this. . . .AIM would be one of several methods to do this. Is it clear why he uses AIM for this?
My remarks on the AIM internal mechanism(The Gear Box) . . .Post # 35670. . . were simple triggered by your discussion mentioning AIM's Residual Buys and that caused me to dive into “how these gears” worked to see the input-output relationship. . .I did not specifically think of Ocroft’s methodology. . . other than an obvious point in earlier posts was that somehow I understood from it that he decided to use AIM’s Zero Buy Point to invest his money. . .
I went beyond that and supposed that at the Price Dip the price would have been just short on triggering a Buy and at the reversal the price has to recover all the way from the Dip Price to a point so that a Min. Sell would be advised. In my minds eye I wondered if this would create enough profit. . .but I realise how that this is simply a Holding Zone issue and that the Sell Point would lie above the last buy price. The fact that a Buying opportunity at the Dip Prise was missed is a different issue, and can be dealt with by using other methods.
Bob, your remarks make me think this over again. Although I no longer call the Residual Buy a flaw, because so many AIMers call it a useful feature, I want to observe this:
Starting op a portfolio
Capital= 20000; CER = 50/50. . . . Share price = 100. . . Save = 0,1
Buy equity = V = 10000
PC= 10000. . . .The question arises: Why is de PC 10000 ???
Suppose after a month I inspect the Portfolio and observe this:
V= 10000. . . Logically I would think: "The price has not changed so the Buy Advice would be 0, but when I use the AIM Instruction Set I see this:
By Advice = (PC- 0,9V)= 10000 -9000 = 1000. . .share price = 100
To buy = 1000/100 = 10 Shares Ij My Min. Buy would be 500 I ought to follow the Instruction Set. . .
V2 = 10000+1000 = 11000
PC2 = 10000+ 500 = 10500
Residual Buy = (10500 - 0,9*11000 = 600 which is still 100> that Min Buy.
This is the Dilemma I find in The Lichello Feature! What is created is a presumably Automatic Investment Management system and after every Buy one is to ignore a Buy Advice. . .
Hoe does this relate to what happens at the recovery at a Dip??? As I see it when one has ignored the Buys to let the price fall until it recovers, then what you are saying is: That because of the recovery the Buy Advice first reduces to overcome the Residual Buy an then it becomes 0 and then after another significant rise in price it has first to overcome the Min Buy Amount. . .right? This could be considered a good delay feature so that the price can rise enough to create a profit since the last Buy. . . but also it could be a problem. . .the price could have dipped to almost generate a Buy and then reverses. . .In that case the price recovery must be much larger. . . It must overcome the Buy = the Residual Buy!!
In that case the first Sell Price might be below the last Buy Price. . . Such a Sell would generate a loss.
Toofuzzy,
Just to complete my remarks on letting the price if an equity drop an executing intermediate virtual buys or to let the price drop without intermediate executions I have calculated the different responses
Capital=20000
CER = 50/50
Price = 100
Hold zone 20% I have chosen an aggression factor of 0,25.
There were 4 price drops to a price of 40,96 the Buy Advice at 40,96 was larger than the remaining Reserve so I executed the forth Buy to get the Reserve ro 0:
Reserve = 0 so 10000 was spend to buy 182 additional shares.
Ntotal = 281 Shares
Equity Value = 115482
Virtual loss = 8452
The I did a single buy @ 40,96 to exhaust the Reserve and I could buy 194 more shares:
Ntotal = 294 Shares
Equity Value = 12042
Virtual loss = 7958
My next trial was to drop the price to 26,21 and then exhaust the Reserve. This allowed me to buy 381 shares:
Ntotal = 481 Shares
Equity Value = 12621
Virtual loss = 7379
Although the general effect of delaying the buying has always been clear fir AIMing and is the essence of Ocroft's earlier post # xxxxx. I find it useful to bring this effect numerically in focus beyond the verbal messages in the subject that are sometimes difficult to "translate" to make it clear how this is happening. From the above it is interesting to note that in this example during a continued equity price drop
1)the equity valueis increasing;
2)the Bail-out loss is decreasing;
3) the number of shares increases.
This really presents a clear "picture" of the potential power of AIMing is if one invest in equity that is volatile and has a near zero chance of becomming worthless
I might add here that the principal effect of using an Aggression Factor > 0 is responsible for adding a little more equity than is lost due to the price erosion. This is clear from the Buying formula
Trade= (PC-V)*1/(1-f). . . .and for zero trading aggression f=0 ----> M=1
This conforms to Lichello's original thought that equity value should remain constant during the up & down trading.
Hi Fuzzy:
If you keep track of the buys you don't make (and disregarding that the price has to move up a bit for you to buy) and then BUY THEM ALL
you will buy more shares than if you do one AIM directed buy at that same low price. (As if the price dropped that amount in one month)
What you are saying may well be right. . . I have no longer an AIM spreadsheet to see how the two methods I described would compare and hoped someone would run the two options for the Standard AIM. Use the example for Standard AIM:
Capital = 20000. . .SER = 50/50
Option 1 is to let the price drop, record the sum X1+X2+. . .Xn to the point at which the Reserve becomes zero, using normal AIM practice. Then the SUM of the buys should be about 10000 and the question is: "At what price does this point occur?";
Option 2 is to let the price drop in normal Hold Zone stages and see how the Buy Advice increases to be about 10000 and also: "At what price does that occur?"
The question is not at all if that is good or bad. At this stage I am simply analysing options that can be used with Standard AIM.
I had planned to make a numerical example with Vortex but this was delayed. I will do that later today.
Just Curious
Regards,
Tom,
Re: Return On Time Averaged Capital in a portfolio-------ROTAC.
Here it appears you're weighing both the investment and the side-lined cash for a time averaged return.
No, that is not the case. I only time Average the Capital Injections and the Equity Value V fluctuates on its own due to price changes and trading without any rime-averaging. If no additional capital is injected ROTAC is identical to ROI.
ROTAC only takes effect when capitalization occurs at different times during Portfolio Life Time.
The fluctuating Equity Value only come into the picture only at the current date when one looks at the PV in order to determine the Yield amount so the ROTAC can be calculated.
The essence of this is that the injected money is considered investment even before you buy any shares and the ROTAC formula would apply to a simple savings account for which you add and withdraw money and with a periodically changing interest rate. I might add that it follows that when a Dividend is received in cash it is a timed-capital injection as well. If the dividend is receives in equity nothing changes other than that the equity value rises.
Regards,
PS.
If I consider only the last part of your statement ". . .time averaged return" it can be construed that ROTAC does not differentiate between money and equity at all. . . it simply sees the cash injections and these are time-averaged to form the time averaged capitalization for the Portfolio, and it ignores completely what happens to the equity during as long as you maintain the Portfolio.
Bob,
Thanks for this additional "take" on what Ocroft appears to be doing.
The interesting part of this is that I had constructed Vortex AIM to function exactly like that:
After the first Equity Buy to start the AIM going at the recommended CER, Vortex would create a Buy Advice X1. If executed the Advice would go to zero and upon a further price drop it would create Buy Advice X1. . .etc. . . .then after a recovery it would start giving a Sell Advice.
Should one not execute Buy X1 the at the price Buy X2 comes around the Buy Advice becomes X1+X2. . .etc., all the way to as low as one dares to go! . . . .(I actually realise now that I have to test if this assertion. . . I will test this later).
Vortex "remembers" the Deficit Amount if the trade is not entered so there would be no reason to actually run the Dummy(the Virtual) as you called it) and add up the various Buys that AIM would have triggered.
This makes me wonder about Regular AIM:
With Buy X1 there is a Residual Buy Advice X1r (Residue), which is not executed. When the next Buy X2 comes around there is again a Residue X2r.
Normally when you Execute X1 and leave X1r "on the books", so to speak, then I assume X1r is 'remembered" by the AIM Buy-function and it makes X2 based on the remembered Residu.
Suppose now that instead of executing X1 in the Dummy one does not. This leaves a Residue = X1+X1r "on the books" in AIM. What happens with the magnitude of the Second Buy X2' and its Residue X2r' ???
What will be the case"
X2'+X2r' = X2+X2r. . . .A
or
X2'+X2r' > X2+X2r. . . .B
???
I find this an intriguing issue. . . .It is a fundamental question on the effect of deferred Buys in the next Buy. . . Hmmmm. . . I wonder. . . .
Now that I have thought about it, Vortex Aim having a pure Ratio Algorithm:
Buy= (PC-V)*M represents a Linear Function (PC-V) but at the share price drops the value of V can become smaller or larger., depending on how aggressive the buying is:
If V becomes smaller then (PC-V) becomes smaller. . . The Reserve is stretched for deeper buying. . .theoretically when (PC-V)------ > 0 and V----- > 0 the Buy Advice ----- > 0. This can theoretically run into a situation that when V= 0 there is still a Reserve left. . . This is previously discussed as the Braking Effect of Vortex AIM when conservative parameters are used
If V becomes larger then (PC-V) becomes larger and the Buys become larger, exhausting the Reserve rapidly and the Buy Advice stops at some R=0 at V> 0 and as V ----- > 0 all of the invested capital is lost as no bus have been acvtiovated(Same as in Ocroft's Case)
In AIM BTB
Buy = (PC-s*V)
This is an Offset Function. For some value of V, as price drops Buy----> 0. There is no summation of previously advised buys!!!!
This is very interesting from the perspective of an equity that drops more than one cares to think about. So delaying the Normal Buy X1 execution will amount to a progressive Advice Reduction, just like it does in Vortex AIM.
I just wonder now how these two strategies work out for Standard AIM as a function of the SAFE s:
Option 1 is to execute the AIM Advice virtually and then afterwards ad up X1 + X2 + X3. . .+Xn = Buy when the desired Price Recovery of say 10% From the Dip Point Occurs. As was noted you deplete the Reserve rapidly and have to see the price dip more with out being able to buy the share at the Dip Price(or close to it.
Option 2 is not to execute the Advice virtually and wait till the price drop stops and the recovery occurs. This then will get you to a point at which the Advice = 0. . .You can wait then to see what happens. If the price drops so low that you decide to Bail Out then nothing is lost. . .just like trhis is so with Option 1. If however you think the equity is still worth buying at the point Buy Advice = 0(or lower), then you can still spend the full Reserve on the Up-trend Buy Point. You have then optimised the Dip Buying!
The meaning of this is that it makes no difference which Option you use if the price drops much more than one expects it will. It only makes a difference if the price drops remains within an acceptable level at which point one still wants to buy the equity even though the Reserve has already become 0. Then Option 2 is the better one as it allows you to follow the Algorithm to a much lower price and you can buy the equity near the very Bottom!
True . . .If the Recovery occurs near the point R=0 then Option 1 is the better one because you have R=0 while for Option 2 you have still money left in the Reserve.
Hi Tom,
First an OT issue:
On various occasions, when I send an e-mail to either of my sons, I end up signing off with:
Regards,
TOM
and then sometimes think of you!
The sign off is: The Old Man!
At other times I think of: "The Old Man and the Sea"
*****************************************************
Now about ROTAC
The Time Average Capital -------> TAC
The ROTAC Yield is based on the Money Input to the Portfolio as a capital investment, initially as is customarily done with AIM.
Example
Start Capital= 20000;
Equity is bought per selected CER at arbitrary momnents;
Assume no capital is added nor withdrawn;
After some time(say T = Run Rime = 1 year) and various +/- trades there is a profit or a loss amount 2000:
ROTAC Yield = Profit/TAC*365,25/T*100%
=/2000/20000*1/1*100% = 10%
This is the same as the ROI that is normally used.
If however one enters the 20000 in two stages 6 months apart, like this:
Time 1--> 6000
Rome 2--> 14000
TAC = (6000*1 + 14000*1/2)/1 = 13000
ROTAC = 2000/13000*100 = 15,38 %
The equity trades and associated investments are not considered, just like ones does not do that with the ROI-Metods. In the ROTAC I treat a divided that is paid out in cash just the same as adding new capital and that is considered in the time averaging. If the dividend is paid out in shares then this is not a capital injection but simply equity gain. It is not part of the capital base.
The same applies when one decides to take money out of the Reserve(to pay a dental bill or whatever). . . .Such withdrawals. . .for example, also Retirement Income withdrawals. . .erode the capital base over time and these are time averaged.
Note that when one pays trading cost, or any other investment costs, these costs are not capital withdrawals but equity value reductions. They are not time-averaged for the ROTAC calculation because they are not capital +/- elements.
In this regards the answer to your question is No.
ROTAC does not weigh the equity. The equity simply fluctuates in value due to share price changes or trading. . .how these changes occur is not relevant. The profit is what counts:
Profit = (PV – Sum Capital Injections)
ROTAC = Profit/TAC *365,25/(Run Time)
Remarks
If one adds Capital X on an arbitrary day, then if at that moment ROTAC is calculated the Capital X is not considered as part of the Portfolio capital because it has spend zero time in the Capital Base and has, obviously, not been active as a capitalization for the Portfolio.
The ROTAC would be perfect for a Buy & Hold Portfolio if equity is bought in stages. Instead of considering two B&H Investments one combines them into 1 Portfolio.
In Vortex AIM one can do this with say 5, or “any” number, different equities in a Portfolio. . . each one fully AIMed on its own merits. . .and the Portfolio Results can be considered as a single investment, like it is done with a Mutual Fund(1).
This way one can set up “any” number of portfolios(1).
Regards,
(1) Here “any” number means of course, as many as would be limited by the Memory Space on your computer, and its number crunching capacity
The Rate of Return on an investment can be defined in many different ways. In response to the ROCAR defined by Tom Veale was a great improvement but for me it was not yet the “sliced bread” I was looking for.
I “invented” the Return On Time Averaged Investment----ROTAI. Still I realised that one could base yield in Invested Capital and that this is a good definition too. . .but still it did not satisfy me for he Vortex program. . . Invested Capital usually also fluctuates in time.
I now have introduced the yield on the basin of Return On Time Averaged Capital]/b] in a portfolio-------ROTAC.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77686845
Finally a clear method for calculating Portfolio Performance for an AIMing Account!
At my introduction to AIMing via Money Spinner using the sequential buying and selling of equity and using a Reserve in Cash in a bank account I have been at odds with the Yield On Investment as a percentage for AIM Portfolio's.
In Engineering and in Business a yield % can be calculated on every part of a process and defining Efficiency was an ever re-occurring problem: “Efficiency based on what? “
Thermodynamics Professor at the University of BC in Vancouver, Canada, deserves the credit for defining yield as a ratio as follows for us:
-------->(What You Get)/(What You Pay For)<---------
Of course, WYG/WYPF can easily bet translated to OUTPUT/INPUT but that is misleading for processes for which one does not have to pay or have to do work for: All inputs do not have the same Input Quality
In AIMing Return On Investment------ROI------as a percentage is not sufficiently defining to mean anything at all, when dealing with a Portfolio in which Equity and Reserve are not seen as a single entity, input entity, unless one specifically considers the Reserve as a separate investment that makes it unavailable for other purposes. . .Money in a savings account, although technically one can consider it as an an investment, most people however do not.
Tom Veale has provided on this Forum years ago an interesting method to define a Return on capital at risk-------ROCAR.
The definition of ROCAR did not completely satisfy me. . . .it only considered the amounts paid for equity: 1) All cost factors that are incurred to set up an Investment Portfolio are not included and 2) the fact that in an AIM Portfolio one can, and people do, add money to the Reserve or they withdraw money from the Reserve(often not even changing the bank account they used for the portfolio reserve).
Essentially a simple ROI yield is never a proper yield because both the equity and the cash is fluctuating in time.
Our VORTEX AIMing program has been modified to account for the following two ways of Yield Percentage Repersentation:
1 Return on Time Averaged Capital----------> ROTAC
2 Return on Time Averaged Investment----------> ROTAI
ROTAC is very similar to the simple ROI except that when one “stacks” his portfolio with money at various different times, or withdraws money, for example as retirement income, the input in capital reduces over time and the real yield on capital becomes quite different, and the ROI no longer is an effective indicator of how well your Portfolio has performed.
ROTAI considers as inputs only the real cost factors for “Running and Maintaining” an Investment Portfolio. . . any cost factor the investor considers a investment factor. . . .any money you “paid” for purchasing equity en any money you “paid” for maintaining the investment are considered time depended inputs. . .these investments are risk. The Capital in the Reserve is not at risk. . .it is part of all the assets you own.
When the Reserve is used as a special investment that you specifically not considers as money in the bank then inputs like that are time related investments. . . .and are no longer considered as a reserve. Admittedly this a matter of choice! You are the Manager.
Incedentially, both our ROTAC and ROTAI use the same calculation routine to calculate the time-averaged-input. The method is formally referred to as the Internal Rate of Retutn(IRR).
In Vortex AIM the main Interface Screen of the Beta version shows the ROTAC and the ROTAI options for the individual Funds as well as the Portfolio in which multiple fund can be grouped. Each fund is separately shown together with the Portfolio Results. By clicking on ROTAC-button the relevant information invested capital is shown, for each fund as well as the Portfolio as a whole. Clicking on the ROTAI-button shows the relevant information for the equity costs, in a similar way.
Typically, for a portfolio in which “things” change over time the ROTAI is much larger than the ROTAC because the yields-base is usually much smaller.
I am interpreting your AIMST Uptrend System simply as an Uptrend Indicator applied to Regular AIM, something similar like the MACRO Filter I mentioned before. The only difference is that with the MACRO Filter the assumption was made that time it was discussed that the initial buy at 50 % CER would have been made. I understand from reading your post you would not have bought at the starting price of 100 and would have waited for the Uptrend signal at $ 45.50. . .which is about 12% recovery on the Dip Price. Most of us here are well aware of that Option. . .It is simply a TA Tool and you can apply that to any Trading Program using a recovery signal to your liking.
"Look at the clive example. Regular AIM is down $10,578.
Your system is down $4,500. Uptrend AIMST is down zero dollars.
Observe I am using AIM as was designed by MR.Lichello".
So, from what yiou are stating here is that you are using the Regular AIM, just like Clive uses in his example. . .that is how I read it.
My point here is that if Clive had used an Uptrend Filter as you dis he would have been down 0 at $ 40,69 and if his Updrend Indicator would be at the same price of $ 45,50. . . and this could have been done also after having the firts Buy at the price of $ 100
Identically this could have been done exactly like that with Vortex. The result would have been the same as for what you did.
In regards to ENRON and others like that. . .The last thing on that has been said long ago. . .If one is asleep during events like that then one loses his money. . .
Knowing when to enter an equity when the price is falling
Observe, at the 40.96 level, the uptrend method has zero dollars at risk. It is wating for an uptrend move before dollars are put at risk.
Also this is an automatic cash(saving )burn method.
This subject is a well known investment issue and has been discussed here frequently. In this context I like to quote something that, as far as I remember it correctly, is also what Lichello has stated in his book.
"The Biggest Mistake an investor can make is not to be in the Stock Market"
This refers specifically to the stock market fact that prices are always bobbing up & down. . .
Prices will rise
or
Prices will remain the same
or
Prices will drop
That are the three certainties that AIM is based on. For the rest you be advised to learn as much about the equity you are interested in. . . such time investment is worth the time!
It is obvious that when an equity is diving that this is a warning for anyone and that you better keep your money in an equity who's price is cycling or is rising.
For that reason various Moving Average Schemes are invented, among which the MACRO-Filter from Don Carlson many years ago was invented for specifically not stepping into an equity that had shown no reversal signs. The problem always remains, of course, that after a short price recovery. . .for example after temporary lack of bad news. . . the stock price goes to zero and then stays there. . then you are still out of the money!
A qoute from my book:
"If you desire to invest effectively then there are two choices open to you. You either make predicting the future your goal or you resign to use an investment technique that will work with the simple fact that stock prices will rise and fall periodically. The simple technique is nothing more than using the age-old wisdom
Buy Low…..Sell High"
Thanks Clive for your additional Remarks:
In Vortex I believe you set the Portfolio Control equal to the stock value after each trade. Under AIM if you buy 10% more stock value the PC is set to an amount half as much of that trade amount higher. When AIM sells PC isn't reduced but remains the same.
Indeed Clive, that is correct. Perhaps some background on this is expedient as many current AIMers here are new at AIMing and have not been exposed to my discussions on it:
1 Setting the PC = New Equity Value is a consequence of my aversion to the concept that if and Engineer designed a Machine for doing something specific and then after the Machine is ready to go he routinely ignores its primary function then I conclude that the specifications are wrong. A Trade Advice is normally meant to be followed up and if a Residual Buy results at the same stock price as the Advice is executed I consider it a Design Flaw. So my primary AIM was to get an Advice Function that would give Trade Advise=0 at the Execution Price.
That is the Operational Logic of Vortex AIM.
That I called the Residual Buy the Lichello Flaw was a Bone of Contention for some AIMers . . .Good discussions followed and the flesh on the bone was chewed off in time.
I have in the mean time become accustomed to call the flaw a Feature, although I remain to hold on to my opinion that Lichello had no prior consciousness whatsoever that this Feature would emerge in AIM. It was certainly not a specification. . .Lichello had few specifications at all. . only some hunches that he wanted to use the equity Price Changes to trigger his Trading on the bare bone wisdom of Buy Low + Sell High, and that the only market certainty is that equity prices would go up en down frequently. . . . .. . . .most of the time.
I have Read the 1977 Edition of Lichello’s book intensively. . .I was hell-bend on going to make at least 1 Million Canadian Dollars with AIMing . . . I had already read The Monet Spinner
. . . and I remember well the "struggles" Lichello went trough in his effort to find what he was seeking. . .The Licence Plate with the 2X in it gave him the hint as to what to do, but before that he had settled(as starting-point for his “scheme”) on this Trade Advice Function:
PC2= PC1 + Buy
but he was very frustrated to discover cover that if prices dropped he saw his Reserve vanish like a Snowball in Hell, like in this Example:
Capitalization = 2000
PC1 = 1000. . .V= 1000
20%
Buy1 = (PC-V)
=(1000 – 800) = 200
Reserve =800
PC2 = 1000 + 200 = 1200
V2= 800+200 = 1000
20% drop
V3= 800
Buy2 = 1200 - 800 = 400
Reserve = 400
V4=800+400 = 1200
PC3=PC2 + 400 = 1600
20% drop
V5=960
Buy3 = 1600 - 960 = 640 <-----Short 240 already for the 3rd Buy !!!!
Effective Share Value Loss = 48,8 %
This bothered Lichello a lot. . .his idea had created a Cash Burn Rate that wiped out his 50% initial Reserve in a jiffy. . .and he lay awake over it (at least so he wrote something to that effect). . ."How do I get around that problem???" he asked himself, and for some time he had no answer, until one day he saw a licence plate on an old car in barn on a farm someplace, with 2X in the number, when he was travelling, and from that 2X he saw the solution, as if by Devine Inspiration, in a flash(so he wrote) that his Buy Update was 2X too large, so he decided to update the PC with 1/2 Buy and that would give him a smaller PC2 and a smaller Buy2 and would leave hum with more Reserve! . . .Bingo! . . .
He could still buy equity after an even deeper price drop would occur!!! Lichello had found his Cash Burn Brake!!!!
The real essence of this however that his Original Residual Buy. . .Original Sin ????. . . . was very large indeed and THAT was the Fly in his Ointment!. . . Lichello did not jump up and down at the discovery he had created a Huge Residual Buy right from the start of his tinkering (as he called it) . . .He did not at all discuss any Residual Buy at that time in his book, nor later, at least not under the name Residual Buy.
After he had created. . . I give credit where credit is due. . . his PC2 = PC1 + ½ Buy Lichello was a happy as a pig in a Barn Yard Mud Hole. . .He had found a neat way to keep MORE money in the Reserve and started to set up his AIM System and began various trial runs.
To Lichello’s dismay the Cash Burn Rate was still too high to his liking. He pondered about this a lot in order to find a solution for it. In all this he had become so happy about his 2X - Revelation that he declared it Holy. . . .ponder ponder ponder. . .”How to Temper the Reserve Erosion without killing that Holy Thing?” . . .It did NOT cross his mind that he could use a different PC-update factor than the 1/2 to get a lower Reserve Erosion Rate. He did not, for example, use this:
PC2 = PC1 + 1/4Buy . . .or perhaps
PC2 = PC1 + 1/3Buy
No, it did not occur to him, for as I remember nothing of the sort in the book.
Lichello decided to invent a Safety Factor on the Buying Rate: “If I reduce the buying by a bit more then the buying should work out just about right. . .too much tempering is no good for it, as then we miss the boat when prices rise again”. . .That is generally how Lichello told his story about it and how he came op with his 10% SAFE. . .still a very interesting development. . to say the least.
Behold, The Lichello Buy Algorithm
Buy = (PC-V) – 0,1 Buy
I maintain that The Residual Buy, as it eventually remained as a Feature, was not an intentional design specification that Lichello had in mind. His Original Residual Buy was also Feature, but a disastrous one at that. Lichello either looked at it and may have excepted it as a little flaw in his Holy Buy Function. . . .in the spirit of Nothing is Perfect . . .or he never saw it until someone told him about it . . .and at a later date, when he was confronted with it, he sort of explained it away in a manner that it looked like is was a good feature, because it produced the Brake on too rapid a Cash Burning for his original Buying Function.. . .I can live with that.
On the fact that after a Sell Lichello did not update the PC I understand it as a Brake on Equity Selling in the spirit of keeping the Investment Base constant ( never sell more that the constant Equity Value you started with, and retain the Equity value after you have reaped some profit. . .no bone of contention on that!
2 After I had eliminated the Residual Buy Feature of Standard AIM and got PC=V after every Buy, I had achieved the following
PC2=PC1 + f* Buy. . .and Buy = (PV-V)* 1/(1-f). . . .with f being the variable Buy Aggression Factor.
Interesting to note here is that the PC-updating PC2=PC1 + f*Buy is precisely the solution Lichello missed for finding effective braking on the Cash Burn Rate for the value of f=1 that he used originally. He settled on his Holy Update Number f= 1/2 as Brake#1 and when he found that the buying rate was still too aggressive he invented SAFE*V as Brake #2 to solve his problem!. . . .In Engineering we call that. . . . ehhhh. . . .Fudging
Why did Lichello use 10% as SAFE? Why not 11,4 or 9,345?. . .He could just as well have used a variable f instead of 0,5 for updating the PC, and then he could have dispensed with the SAFE altogether and he could have use the simple Function Buy = (PC-V). . .period !
In any case I have decided that for the Selling I would use the same Trade Algorithm
Sell = (PC-V)* 1/(1-v)
PC2=PC1 + v*Sell
And here too PC=V would always come out of it, IF the Sell Advice would be executed.
Remark
With a consequent execution of the Vortex Trade Advice PC=V is the formal result. If however one would decide that the Advice would not be appropriate. . .for what ever reason. . .then the investor could execute a smaller or a larger trade. . .No problem to do that! Vortex would respond with a Deficit Trade Advice. . .simply reminding the investor that in order to follow the Algorithm the trading was not completed. The investor gets the opportunity to alter the Trade Aggression or to wait for the next price change. If he does that then the Trade Advice would be larger by the amount of the Deficit Trade Advice. This is similar in character to the Lichello Feature, except that in Vortex it is a specific result of NOT executing the specially designed Trading Function that would purposely give PC=V.
As Vortex is constructed I have intentionally removed the Deficit Trade Advice from the program and programmed in the PC=V after a Trade. The rationale for this is that . . .If the investor had a good reason to judge the Trade Advice is not appropriate then a Forced PC=V is the solution. He now has the Choice as follows: 1) The Trade Advice is shown that normally would give P=C after execution. 2) Should the investor decide to execute a different trade size then Vortex responds with PC=V as a forced alternative PC=V in line with the judgement of the investor. If this happens often then the investor can temper or accelerate the trading so that the normal Trade Advice is more or less in tune with what the inestor decides it should be. . .a conscious intervention becomes the basis for readjusting the Vortex Operational Parameters.
This gives me a very flexible Trade Algorithms that I can set separately and I could set the Aggression Factors f and v exactly as I wanted them to be.
Aggressive buying + Aggressive selling. . . .Profit Reaping on a Trading Range. . .for Tigers!
Aggressive buying + Conservative selling. . .Equity Growth.
Conservative buying + Conservative selling. . . For the Scared that like Buy & Hold
Conservative buying + Aggressive Selling. . . .For letting the Portfolio serve as an Retirement Income Plan
Also the f and the v factors can be used to adjust the behaviour such as Trading Frequency and Trading Magnitude in response to Equity Volatility changes. . .for a low volatility equity like SPY is now one can use a small Holding Zone and still trade quite frequently with good size Trades.
The one thing that with Vortex AIM does not occur automatically as yet is to achieve progressive Trade Size increases for trades moving towards the Outer Limits of a Trading Range. . in order to do that I would have to superimpose a Progressive Ladder Structure. . on the trading function, and THAT has been discussed exhaustively on the AIM Forum. I have not come to any easy automatic solution for that. I have struggled with that like Lichello struggled to invent his Standard AIM Algorithm. . .as yet I have not found the solution for it.. .. .
That is. . .I just got a Inspirational Flash on this . . .I have to let it sink in. . .I do NOT want to create a Vortex Flaw!
Thanks Clive for your additional Remarks:
In Vortex I believe you set the Portfolio Control equal to the stock value after each trade. Under AIM if you buy 10% more stock value the PC is set to an amount half as much of that trade amount higher. When AIM sells PC isn't reduced but remains the same.
Indeed, that is correct. Perhaps some background on this is expedient as many current AIMers here are new at AIMing and have not been exposed to my discussions on it:
1 Setting the PC = New Equity Value is a consequence of my aversion to the concept that if and Engineer designed a Machine for doing something specific and then after the Machine is ready to go he routinely ignores its primary function, then I conclude that the specifications are wrong. A Trade Advice is normally meant to be followed-up and if a Residual Buy results at the same stock price as the Trade Advice was executed I consider it a Design Flaw. So my primary AIM
was to get an Trade Advice Function that would give Trade Advise=0 at the Execution Price.
That is the Operational Logic of Vortex AIM Trading Advice!
The explanations became rather long in order to make my story lucid. I have presented the Full Story on my Vortex AIMing I-Hub Forum.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77378708
****************
Here are the essential paragraphs of it.
.
.
.
Lichello originally formulated the AIM System like this:
Capitalization = 2000
PC1 = 1000. . .V= 1000
20%
Buy1 = (PC-V)
=(1000 – 800) = 200
Reserve =800
PC2 = 1000 + 200 = 1200
V2= 800+200 = 1000
20% drop
V3= 800
Buy2 = 1200 - 800 = 400
Reserve = 400
V4=800+400 = 1200
PC3=PC2 + 400 = 1600
20% drop
V5=960
Buy3 = 1600 - 960 = 640 <-----Short 240 already for the 3rd Buy !!!!
Effective Share Value Loss = 48,8 %
This bothered Lichello a lot. . .his idea had created a Cash Burn Rate that wiped out his 50% initial Reserve in a jiffy! . . .and he lay awake over it (at least so he wrote something to that effect). . ."How do I get around that problem???" he asked himself, and for some time he had no answer, until one day, quite a while later when he was driving around in the country side, he saw a licence plate on an old car in barn some place, with 2X in the number, and from that 2X he saw the solution to his problem in a flash(so he wrote) that his Buy Update was 2X too large. From that he decided to update the PC with 1/2 Buy and that would give a smaller PC2 and a smaller Buy2 and would leave larger Reserve for buying shares! . . .Bingo! . . .
He could still buy equity after an even deeper price drop would occur!!! Lichello had found his Cash Burn Brake!!!!
.
.
.
Lichello, after having seen the old Licence Plate with 2X on it he realised, as if by Devine Inspiration, that he had updated the PC with double the amount he should have , so he setteled on this PC-update:
PC2 = PC1 + ½ Buy
To Lichello’s dismay the Cash Burn Rate was still too high to his liking. He pondered about this a lot in order to find a solution for it. In all this he had become so happy about his 2X - Revelation that he declared it Holy. . . .ponder ponder ponder. . .”How to Temper the Reserve Erosion without killing that Holy Thing?” . . .It did NOT cross his mind that he could use a different PC-update factor than the 1/2 to get a lower Reserve Erosion Rate. He did not, for example, try this:
PC2 = PC1 + 1/4Buy . . .or perhaps
PC2 = PC1 + 1/3Buy
No, it did not occur to him, for as I remember nothing of the sort in his book.
Lichello decided to invent a Safety Factor . . .he was a tinkerer after all. . .on the Buying Rate: “If I reduce the buying by a bit more then the buying should work out just about right. . .too much tempering is no good for it for then we miss the boat when prices rise again”. . .That is generally how Lichello told his story about it and how he came op with his 10% SAFE. . .still a very interesting development. . to say the least.
Behold, The Lichello Buy Algorithm was created
Buy = (PC-V) – 0,1*V
***********************
.
.
.
2 After I had eliminated the Residual Buy Feature of Standard AIM and got my PC=V after every Buy, I had achieved the following:
PC2=PC1 + f* Buy. . .and Buy = (PV-V)* 1/(1-f). . . .with f being the variable Buy Aggression Factor.
Interesting to note here is that the PC-updating PC2=PC1 + f* Buy is precisely the solution Lichello failed to think of for finding effective braking on the Cash Burn Rate for the value of f=1 that he used originally. He settled on his Holy Update Number f= 1/2 as Brake#1 and when he found that the buying rate was still too aggressive he invented SAFE*V as Brake #2 to solve his problem!. . . .In Engineering we call that. . . . ehhhh. . . .Fudging
************
.
.
.
I have decided that for the Selling I would use the same Trade Algorithm
Sell = (PC-V)* 1/(1-v)
PC2=PC1 + v*Sell
And here too PC=V would always come out of it, IF the Sell Advice would be executed.
Remark
With a consequent execution of the Vortex Trade Advice PC=V is the formal result. If however one would decide that the Advice would not be appropriate. . .for what ever reason. . .then the investor could execute a smaller or a larger trade. . .No problem to do that! Vortex would respond with a Deficit Trade Advice. . .simply reminding the investor that in order to follow the Algorithm the trading was not completed. The investor gets the opportunity to alter the Trade Aggression or to wait for the next price change. If he does that then the Trade Advice would be larger by the amount of the Deficit Trade Advice. This is similar in character to the Lichello Feature, except that in Vortex it is a specific result of NOT executing the specially designed Trading Function that would purposely give PC=V.
As Vortex is constructed I have intentionally removed the Deficit Trade Advice from the program and programmed in the PC=V after a Trade. The rationale for this is that . . .If the investor had a good reason to judge the Trade Advice is not appropriate then a Forced PC=V is the solution. He now has the Choice as follows: 1) The Trade Advice is shown that normally would give P=C after execution. 2) Should the investor decide to execute a different trade size then Vortex responds with PC=V as a forced alternative PC=V in line with the judgement of the investor. If this happens often then the investor can temper or accelerate the trading so that the normal Trade Advice is more or less in tune with what the inestor decides it should be. . .a conscious intervention becomes the basis for readjusting the Vortex Operational Parameters.
This gives me very flexible Trade Algorithms that I can set separately and I could set the Aggression Factors f and v exactly as I wanted them to be.
Aggressive buying + Aggressive selling. . . .Profit Reaping on a Trading Range. . .for Tigers!
Aggressive buying + Conservative selling. . .Equity Growth.
Conservative buying + Conservative selling. . . For the Scared that like Buy & Hold
Conservative buying + Aggressive Selling. . . .For letting the Portfolio serve as an Retirement Income Plan.
Also the f and the v factors can be used to adjust the behaviour such as Trading Frequency and Trading Magnitude in response to Equity Volatility changes. . .for a low volatility equity like SPY is now one can use a small Holding Zone and still trade quite frequently with good size Trades.
The one thing that with Vortex AIM does not occur automatically as yet is to achieve progressive Trade Size increases for trades moving towards the Outer Limits of a Trading Range. . in order to do that I would have to superimpose a Progressive Ladder Structure. . on the trading function, and THAT has been discussed exhaustively on this AIM Forum. I have not come to any easy automatic solution for that. I have struggled with that like Lichello struggled to invent his Standard AIM Algorithm. . .as yet I have not found a Devine Inspiration for the solution for it.
That is. . .I just got a Inspirational Flash on this . . .I have to let it sink in yet. . .I do NOT want to create a Vortex Flaw!
Vortex AIMers, this may be of interest to you:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77296806
This is the start of an interesting series of discussions on:
1) Portfolio Review vs Trading Frequencies;
2) The fundamental differenced between Vortex AIM and Standard Lichello AIM...(AIMST;
3.1) For a parameter-setting that is identical for Vortex and AOMST at the start of the buying AIMST is a much more aggressive machine overall with a much larger Cash Burn Rate which may nee tempering;
3.2 In 3.1 the Buys with AIMST become larger as the equity price drops. This is Progressive Buying. . .running the Reserve to 0 fast;
3.3) In 3.1 the Buys with Vortex become smaller as the equity price drops. This is Contra-progressive Buying. . . allowing the Reserve to have money left for buying at even lower prices. . . This Vortex feature is like a Brake on the buying.
4) As may be obvious to any investor, when prices drop, delayed trading. . .concentrating the buying at the low equity price gives a much greater yield when the prices recover.
As usual such features can be a blessing. . .if understood and regarded properly. Also they can cause peril for the investor. One does well to consider these features of Vortex for what they are worth in order to let them work to your advantage.
Also read the AIM Post with numbers > 35618 to 35525 that pertain to these features on
http://www.aim-users.com
Regards,
Adam, you are right on the button!
It's a good distinction to be made between reviewing and trading frequency.
I must admit that it rarely happens that I agree with other people's arguments. . .usually some nit-picking is possible.
In this case I have combed your post with the finest comb I could find and there is not even 1-bit I do not agree with!
You are exactly expressing my point: Remain the Master of your Investment Machine. . .Buy and Sell as the Machine dictates only when you are sure that it is the correct call for you.
This applies also to how often one wants to trade. . .One might be a savvy investor and have a good hunch. . .I mean good information. . . that the equity is moving between an upper and lower bound. . .Then it is a sensible decision to trade as frequently as the cycling stock prices will dictate it.
As you may have noticed in my other posts today, I am fully aware that delaying buys (and sells too) can be a good thing to do. I have said so in may post in the past also.
When Don Carlson figured out. . . ages ago. . .his idea for his filter for delaying buys and sells using a crossing-over of a moving average he send me the example he made up for it and asked me to check it out so as to make sure he had made no errors. When I was doing this checking I came upon the perfect name for his filter: Moving Average Cross Over. . .and suggested the name MACRO for it to Don, which he gratefully gave me credit for that time.
Clive, I am jealous as hell. . . . at you Chart Printing Skill
Thanks for sharing that Table.
I notice that for the 4 weeks you have bought for $ 10579
OK, that Over Run of $ 579 is borrowed money
That would be exactly as would happen with my Vortex TurboVest version. . .works like a charm when the price recovers!
Why did you buy for $ 1481 more shares at the same price of 40,96?
Or. . . may be, is that the Lichello’s Residual Buy Advice?????
Was did an actual Investment or a Test Case, as I assumed it was?
**********************
My trade amounts in the Tempered Vortex with the same $ 1200 First Buy at # 80 are 1 week apart:
1200
1104
1015,68
934,424576
No Residual Buy Advice
= Total Bought after initial $ 10000 Starting Buy:
$ 4254,104576
Interesting here is not only that Vortex, for an identical Starting run @ $80 for a Buy at $ 1200 the extra Buying is only $ 4254 but also that the Buys become progressively smaller!!!! This is something I have noticed with the original SPY Demo Run I did in 2010!
This is good if one wants to Brake the buying as the price drops but it is bad in one wants to have the buys become progressively larger, so as to have more effective buying towards the bottom of a Trading Range.
I think no one, except Warren Buffet, can win on all points. . .I run into pro's and con's all the time when I do anything at all
Summarized results of Vortex comparison with Standard AIM Example provided by Is7550 in Post # 35606
C= 20000 : CER= 50/50 : SAFE = 0,1 : Min Trade = 10% : Price drop = 20%.Week : N=100
End of Run Results from the previous Post # 35615
4-Buy Run. One buy per week, starting at week 2 at P= $ 80. . .Buy Aggression = -0,66667
V= 7164
R= 5746
PV= 12910
Profit= -7090
N= 175
Single Buy @ Price = 40.96 at the start of week 5. . . Buy Aggression = -0,66667
V= 7638 ------- +
R= 6458
PV= 14096
Profit= -5904
N= 186
Considering that the Vortex buying aggression has been tempered to give an identical 1st Buy as AIMST at price of $ 80 it tempting to conclude that, because both machines get out of the starting blocks at the same speed, that they are more or less equivalent "runners" in a race. This clearly shows that this is not the case. The Standard AIM(AIMST) 4-Buy variant had spend the $1000 Reserve after 4 weeks, whereas the Vortex 4-Buy tempered version at identical Start Block Speed as AIMST had at the first 20% price drop, is easy to see that AIMST becomes more aggressive as the price drops towards a high Cash Burn Rate and has emptied the Reserve, and it had more shares invested at $ 40.96 than Vortex did.
Vortex instead retained a Reserve of $ 5746 for significant buying power if the price drops lower. If however the price would return after having dipped at $ 40.96 it is obvious that AIMST would have been a better machine at the applicable parameter settings.
So far this means, from the point if view of increasing the buy amount as the price drops that AIMST does this better that Vortex. . . This in reference to earlier very interesting discussions on a Progressive Buy Function for dropping prices towards a midpoint price for a trading Rang.
On the other hand, the notorious Cash Burn Rate of AIMST. . .often this has been a bone of contention in regards to AIMST functioning. . . has been demonstrated here again. For Vortex this clearly is not a problem when low aggression factors are used. . .clearly the buying is less progressive that AIMST for the 20%/week price drops.
But what is the real value of the information here?
First of all, maybe there is no lesson to be learned for reasonably experienced AIMers. . .they know what to do in response to price behaviour of a fund. It is already well known that deep divers can be a blessing as well as a curse. . it all depends what an investor does when the prices have dropped by 60% . . .if he has not bailed out already! The value of a Delay Filter in such cases such as the MACRO and others they need not be mentioned again. . . each AIM investor will. . .in time. . .learn to deal with his AIM Machine and make the operational adjustments as he considerers appropriate. I might add here that a fund that starts out at a price of $ 100 and drops 20% in a week will make many investors uneasy, and even some AIMers may bail out if the drop reaches 30% or less. Then it can happen that the price starts to cycle between a weekly +/- 30% horizontal trading range about a mid-price of say $90. Any AIMer that is only reviewing per 4 weeks will have missed the Silver Fleet. A keen AIMer that looks at the market every day would see that behaviour, and can adjust the operational parameters of his machine. . that’s WHY there are Dials on any Machine for Turning them. . .to the correct new postion!
If AIM Machines are to be compared one need to process a fairly representative range of arbitrary equities, run them trough different machines for a reasonable period of time without intermediate adjustments of the chosen parameters. Then use different parameters that are also reasonable starting parameters, and do the testing all over again for the same period.
Only then can one get a clue about the merits and pitfalls that may be discovered for the different machines. . .but the pitfall of that testing method itself is that Investors will generally do NOT invest like that. The Aim Forum and other investment forums are the very proof of that. . .People are forever suggesting schemes to make AIM better and to do this or do that in response to the market in general and stock prices in particular. . and of course, that is just perfect in my opinion. . .I applaud it!
I recommend that investment skills ought to be used to change The Dials on the Investment Machine that one uses. . not emotion but rational judgement should trigger the necessary parameter changes and even to buy or not to buy at a particular moment. . .Each Machine requires its own Operator to make it run optimally.
In regards to the 1-Buy Case at a price of 40,96 Vortex did perform predictably better relative to the 4-Buy Case, because of the known continued price drop that applied, and the buying at low prices that would occur. In reality that does rarely happen at a 60% price drop and if it did people would be caught with the pants down. . especially if they do not watch the stock process for a month. . .this would make them unprepared to intervene properly with the running of their Investment Machine.
Keep an eye on the market every day!
Hi Clive, I assume you are hooting for Any when he scores! My favourite is Roger ever since I saw him play the first time in the 1990-ties.
The weather is a bit wet here too but in no way as bad as in other places. The sun has been out her with light cloud cover...Utrecht. . .Centre of The Netherlands.
I have made the two other runs. I plug the results here and discuss then later after the tennis is over:
4-Buy Run Same start conditions.
I had to temper the Buy Aggression to get the first buy at Price = 80 to come out at $ 1200 and 15 shares.
Buy Aggression = -0.66666
Murray just almost broke his neck!!!!7
Results. . .Al amounts rounded to whole numbers:
V= 7164
R= 5746
PV= 12910
Profit= -7090
N= 175
Clearly less aggressive than before.
Single Buy @ Price = 40.96---Same Buy Aggression = -0,66667
V= 7638
R= 6458
PV= 14096
Profit= -5904
N= 186
Federer is a steaming on with a break!
Will comment on it later.
Regards,
Hi Clive, between the Tennis Games of the First Set on Wimbledon I produced some Vortex Data Sets to have a closer look at:
For 50-50 initial stock/cash ($10,000 stock value, $10,000 cash), 10% SAFE, 10% min trade size and assuming a stock was 100 and declined 20% each week for four weeks down to 40.96, a weekly updated AIM would have exhausted all cash reserves ($10,578 of total buys). The same settings, but reviewed at the 40.96 price as the first update would indicate $5500 of additional stock be bought and still leave $4500 in cash reserves should the price continue further down. (There would be a residual buy of around $2200 sitting there waiting to be traded even if the price moved nowhere).
just to see how Vortex reacts to this. I have used for as far as possible the same although Vortex has no SAFE variable.
Start with 100 Shares @ 100 50/50 CER
I start with the Aggression Factors at 0, so the Buying good at
Buy= (PC-V)*1
****Murray has just this moment won Set 1****
In 4 consecutive Buys @ 20 drop in price I end up with this:
Value = 10000
Reserve= 2000 <-----Quite different from AIM zero Reserve
N=244.1406
PV= 12000
Price= 40,96
Profit= -8000
I know Vortex acts different right from the start. In order to compare it with Standard AIM I need to know the size of the first Buy in your 4-Buy example, which is, I think
Buy1 = (10000-8000) -800 = 1200 . . . .Correct
In my second comparison I will adjust the Vortex Buy Aggression to match the AIM Buy1 To the Vortex Buy1 and then we will see how it works out to the end for the 4 weeks.
First I wil report the VORTEX Single Buy Case at 40.96:
Value = 14096
Reserve= 0 <-----Quite different from AIM zero Reserve
The Buy Advice was > than Reserve so I had to temper the Buy to [prevent the Reserve going negative.
N=344.1406 <-----This is 100 Shares more than in the 4-Buy Case!
PV= 14096
Profit= -5904
Interesting Result to say the least but quite logical. Because of the 4-week wait the full Reserve value of $ 10000 could be spend at the low price of $ 40.96. . .This resulted in 1) 100 more shares and2) much $ 2096 less value loss.
These are the obvious and well known effects of delaying the buying to a lover price level. . This argument is the same for any investment scheme.
The interesting part here is that for a Vortex with zero Aggression, the results are 180 degrees reversed !!!. . . After 4 Buys I have $ 2000 left for in case the share price falls more. This means that the Standard AIM is a more aggressive buying machine than the Standard Vortex AIM with 0-agression ! This is something I had not discovered before.
Now it is time for more tennis. . .Federer is not at his best now but is holding off Murray in Set 2. . .Federed a bit ahead as yet!
I will adjust Vortex and do the run again later and then I will discuss more merits and pitfals in regards to my thinking on investing.
Regards,
****Ahaa. .Federer pulled out a bit of Magic to win a Set too!. . . . I opened a bottle of wine for that ****
Hi Clive,
The question of weekly or monthly Reviews for an AIM Portfolio have been discussed ever since Lichello published his book on AIM. . .I have a 1977 issue that I bought in 1980 when I got introduced to Lichello's method by Chuck Chakrapani's Money Spinner from which I developed Vortex AIM. I have considered reviewing(looking at) my AMS portfolio only once a month rather strange. . .I have difficulty imagining any AIMER ignoring his AIM Portfolio generally and then having to look at his Agenda as to when he has to review his Portfolio again.
I find it interesting that you use the word "review frequency" as if it is the same as trading frequency. I am sure most people do a lot more reviewing that actual trading. Considering that most AIMers are rather technical "nerds" when it comes to their AIM Trading. . .quite opposite to the "target audience" Lichello to have had in mind when he wrote his book. Judging by the high level of technical curiosity and aptitude people on this Forum have demonstrated in regards to AIM-algorithms and AIM parameter variations my guess is that most active AImers keep a keen eye on the market an review their AIM Portfolio much more frequently than weekly and I venture to suggest many of then even review it daily and at least some AIM-wives consider their hubby AIM-addicts J
Of course I do not dare to suggest that AIMers trade as often as they review their Portfolio. From what I have been able to extract from almost 10 years of reading the AIM Forum I also feel that many AIMers also appear to consider AIMIng a challenging game and love to tinker with it, and analyse it to make it better. . .and also are prepared to respond to market movements in order to adapt the settings, apply filters and do a lot of things to prevent the pitfalls that are there when one does not "keep an eye on things", so that the trading frequencies as well as the trade magnitudes are adapted in response to what the market is doing. . .I would be amazed if that was not the case.
This brings me to your suggestion that "reviewing" monthly might provide an advantage of reviewing weekly. I tend to disagree, for one, without having an eye on the market by not looking at the market for a month. . .for many funds that is a long time. . .the price could well dip considerably and then return again so that a buy & sell opportunity is missed. By keeping a keen eye on the market one has at least an opportunity to get to know what is going on. . .which would allow him to wait 2 or 3 months or act fast. . .On my Spy Demo Portfolio I had about 7 trades in 18 month and I must have reviewed it I bet 100 times or more.
Buy more to the point, if a stock is in a diving mode and one would without any market savvy, with weekly reviews trade weekly and have burned his cash in 10 weeks he night have burned about the same amount of cash with monthly reviews. This of course depend on his SAFE values but the basic feature that causes a Cash Burn in AIM also causes a large Cash Burn after having waited a month:
Buy = (PC-V)-sV
If one waits 1 month then the value of V could have dropped a lot mote than if one had waited 1 week. So the Buy Advice after 1 month. . . specially if s is rather small. . . could be quite huge considering that the value V had dropped considerably so that the Lichello Brake -sV is rather small.
In contrast with weekly trading would occur 10 times in 10 weeks and considering that each trade amount would well be smaller than the trades done each month it might not take any longer to deplete the Reserve when trading ones a month. Admittedly, have not tested this out numerically but I could apply apply the Cash Burn Rate Brake much more effectively when I keep a frequent eye on the marker by looking at the prices every few days, which would allow me to buy and sell more effectively than not looking for a month at my AIM. . .keeping in tune with the market provides the opportunities to act effectively. . .Not looking at it provides no opportunities to intervene when it is opportune to do so and could make things worse.
For years there have been discussion on this Forum on the use and merits of ROCAR and in the case of Vortex AIM, about the use of ROTAI, which uses a Time Averaged Investment TAI.
ROCAR and ROTAI have the same basic definition except that in ROTAI also the time variable investment components such as among others trading cost and for example dividends are elements that are taken into account as well.
I have decided to modify the ROTAI Calculation method as at some point in rime the Total Capitalization was included in the TAI. . .which reduced the ROTAI to almost the same value as the simple ROI.
See more on this on:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=77283807
Regards,
The Vortex ROTAI Definition is to be changed
In Vortex AIM initially the Annual Yield for any fund has been calculated on the basis of the Time Average Investment (TAI) for the time variable inputs and withdrawals. In this the Initial Capitalization was not seen as an Investment in the equity. . .only the initial purchase of equity was considered an investment Also the cost of buying the equity is considered an investment . The basic principle of the ROTAI . . . .Return On Time Averaged Investment. . . .is very similar to the ROCAR as defined by Tom Veale and is used by AIMers to get a better feel of the real yield of their investment. . .The ROTAI specifically presents the yield on Capital at Risk. The Reserve is not considered an investment as it simply part of the investor's Back-up Assets. A Reserve only becomes an effective investment in case it is provided as security to Broker that has been given to the authority to spend the money as he sees fit or to cover for losses like they can occur in FOREX trading via a Broker.
In private investing such as AIMing the AIMer has full control over his Investment and can decide at any time NOT to Buy an equity. . .or to sell some of it. . .his Reserve is not Risk Capital until he buys equity for it. This is the fundamental basis for me using the ROTAI Yield in Vortex AIM. It has always been my principle guideline for having the investor call the shots and not let a machine take over. The Reserve in a Portfolio is not locked-into an investment.
For this reason I have decided to redifine the current ROTAI Yield Equation so that only the time averaged investments are calculated as the effective investments. The Reserve is regarded simply as a Private Buffer to buy equity up to the point that the investor is prepared to do so. Also in the past and in my book The Vortex Method I have advised Vortex AIM investors to regard the Reserve as flexible back-up money in the sense that one might add to it, or take away from it, as he sees fit, without in any way altering the equity holdings.
Recently I discovered that some time ago the ROTAI Equation had been altered to include 100% of the capitalization of the Portfolio. This means in effect that now the ROTAI works only from the point of view of the small scale inputs and withdrawals that are the time average component of the investment. . .whiping out the principle feature of ROTAI! In effect the ROTAI is now only marginally different from the simple ROI and I discovered this with managing the current Demo Run on SPY. The ROTAI yield in the Excel version I am using for Testing is ~ 18% while the Vortex Windows ROTAI shows only 6,5 %. . .which is about the same as the ROI using the $ 20000 capitalization as Investment while in effect the Time Averaged Investment is only about $ 6400!
The ROTAI Yield Equation will soon be resorted to its former glory . . .In this only equity investments, withdrawals and directly related equity components relevant to the acquisition and selling of the shares will be part of it, so that only the Capital at Risk is considered as the basis for the yield calculation.
In this it is interesting to note that for example in this scheme a dividend is considered as a negative investment. . .in effect it is a time-based withdrawal from the equity . . .it only affects the investment at the time it is received . . .In the ROTAI Equation the dividend makes the investment base smaller so that in this way the dividend as a time-based negative investment infuences the yield of the investment more realistically. Only in proportion of the time the dividend has entered the portfolio does it participate in the yield calculation
If one would simply add the dividend to the Reserve it manifests itself as simple Profit, and then the dividend amount is effectively assumed to have been paid out at the without regaqrds to when it was paid out. This inflates the ROI unfairly. In the ROTAI calculation the dividend accrues its effect only in proportion of the time it has been part of the portfolio.. . .It is more honest yield. See the example:
Profit 100 + 10 Div = 110 total profit.
The 100 profit is simply profit, assumed to have been there on Day 1 already!
Investment on Day 1 = 200
Dividend was added on Day 300 of the year with 365 days in it
ROI Method . . . . . Yield = 110/200 for 1 year = 0,55 or 55%
ROTAI method. . .. Yield = 100/{[(200*1 - 10*(65/365)]/365} = 0,5045 or 50,45 %
Because the dividend is a profit component that has been in the portfolio only for 65 days its effect is that the yield is much smaller than with the unfair ROI Method.
If you do not see this then think of the case in which de dividend would be paid out on Day 366. . . .a day after the Year End Run is evaluated. At that time there is no dividend and the ROI = 50^% just like the ROTAI would be!!!! This is the reason for using the Time Averaged Investment Method. . . .It gives an honest Yield Percentage
Information on upcoming updates on Vortex AIM
Cash Limiter Vortex Version
Recently I discovered with a Test Portfolio that in some cases the Negative Reserve Preventor (NRP) does not always prevent buying shares when the Reserve for a fund is too small to execute the Advised Buy. This brings the fund unintentionally into a position of having used “borrowed money. Although in practice such a trade would not be executed it is the specific purpose of the Standard Vortex Program to prevent making trades with “borrowed money”.
The cause of this error is as follows:
In any Portfolio one can enter as may different type of equities as desired. For this up to 5 bank accounts can be used per Portfolio for keeping the Reserve and for Fund Cost Accounting so that Equities Management can be grouped in desired categories. . .For example Precious Metals and another types like Oils, etc. in a Natural Resources Portfolio. This way one can have 5 different type of natural resources grouped in one Portfolio. Each Fund is singularly fully represented as a separate investment, in regards to all relevant investment aspects such as among others, Yield, and these are summed-up to form the Portfolio Total Representation, as if the Portfolio is a single investment.
This worked fine except that till now the testing for sufficient cash to buy(or not to buy) has been done on the Reserve Total per account, rather than on each fund. This has allowed the possibility that some funds can go to a negative Reserve if the Account Balance is large enough not to go negative. This is not as intended. It would work fine only if a Portfolio has two funds that have negative correlation. . .one fund sells while the other buys.
Vortex Aim will be modified so that the NRP Test will be carried out on the Reserve per Equity. This would prevent the allocated Reserve for a fund to become negative: The Buy will be blocked until enough money is available for buying.
Yes Marc,
The amount is € 100
My PayPal name is Vortex Engineering
Email = eng@vortex.[***]demon.nl
Remove the [***] from the e-mail address. . . I am told that this[***] will fool Robot Scanners
Regards,
Hi Marc,
Referring to your Enhanced AIM using a leverage factor:
Perhaps it wasn't meant to work with such an aggressive sequence as lichelos 10-8 etc.
That is correct!
Just to remind other readers on this Forum of the Vortex idea, I re-iterated it here:
As I showed the 2X-Leverage to creates a too great a Cash Burn Rate and a too rapid Share Sell Out.
My Vortex Method to eliminate the Lichello Residual Buy was not primarily directed to create great Trading Aggression but to find the correct value of the f-Factor in the AIM Function
Trade = (PC-V)*M to get the Residual Buy Advice to disappear
This specifically was used in the AIM PC-Update Formula
PC2=PC1 + f*Buy . . .the f in Standard AIM = 0,5
What resulted from this is that M= 1/(1-f) and that allowed me to Introduce the Aggression Factors for Buying fb and for Selling fs.
This resulted in an opportunity for very effective Method to make the Buys and the Sells as small or as large as one would want them! One can trade very conservatively this way eith a variable f-factor and even actively trade on funds with very low volatility and still get desired frequent trading action!
************************************************************
On your Vortex Registration Order : If you used the Order Form then The Code will automatically change your Vortex Demo to a registered version after we get payment confirmation.
What you have to do yourself is to activate the PayPal Payment at PayPal. . .This does not yet occur automatically. I might need to update the Vortex PayPal Account to have this happen automatically.
We will wait for the Payment. Remember. . .the payment is for the Registration Code. . .The Vortex Demo Version becomes then a Registered version.
Regards,
Hi Marc123
I just spend a long time writing up my reply and the result of some testing and then I pressed the wrong button. . .Everything gone
I just want to mention this:
1) I have assumed for the AIM Adaptation that you suggested:
Buy = 2*{(PC-V)-0.1*V}
Sell= 2*{(V-PC)-0,1*V)
PC Update after a Buy:
PC2=PC1+ 1/2*Buy
PC not updated after a Sell
2) I have made up the AIM Algorithm like that but the results make no sense. The Buying and selling are so aggressive that first all the Reserve is depleted long before the price of $4 is reached, missing buys at the Dip prices $ 5 and $ 4
3) Then the Selling starts aggressively so as to sell all the shares as the price hits $ 10 again
I spend lot of time modelling this but I gave up as it makes no sense.
All I need to know is
A) That the model you referred to does not go into negative Reserve values
B) The First Buy at $ 8
C) The First Sell at $ 5 after the price hits $ 4
Until then I can not compare anything.
Regards