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Jack and Cindy...Re: 2X and 3X funds.
These are excellent short-term "trading" vehicles, IMO. Used them in the recent past to make very short-term trading profits of 5% and 10% with a small portion of my money. Recently had several sells with the 3X BGU and TNA funds. In fact, I sold the last of my BGU portions this past Friday for a small profit. Usually don't hold a position more than a few days. Don't have an investment in these critters at this moment, but that could change if the market changes.
Considered AIMing these two funds, however gave up on that idea after doing some research. The prospectuses are clear that these are short-term investments and should not be bought-and-held. Even though AIM generally has more activity than buy-and-hold, it is still a close cousin to buy-and-hold because an investor never sells all their shares with AIM, especially if they are using SAFE as a percentage of the Stock Value and not a percentage of the Portfolio Control.
Personally I am not sure I would get into the inverse funds at the moment. Logically it makes a lot of sense to do it. But, IMO, the market is anything but logical at this moment. For example, the market was all excited this past week about Alcoa beating profit "expectations". Did not hear much being reported about their revenues being down 70% or so. Until companies begin growing their top line revenues I don't have much trust in the market. Don't know if the market is being manipulated or not....it just doesn't make sense to me. As a result, it could go a lot higher from here even though I don't think it should until the revenue picture improves. Would be a little leery of putting money into an inverse fund until the market actually began going down for logical reasons.
Ray
Hi Clive,
In your post you made a remark that you do not believe 3X funds pays dividends. Just checked at Yahoo on one of the 3X long large-cap fund...BGU. Yahoo shows it has paid quarterly dividends this past year.
$0.066 a share on 17-Dec-08
$0.083 a share on 24-Mar-09
$0.112 a share on 23-Jun-09
$0.115 a share on 22-Sep-09
Yahoo shows a start date of 5-Nov-08 for this ETF. It would appear that a commitment has been made to pay quarterly dividends.
Also checked the 3X long small-cap fund...TNA. It too has paid quarterly dividends since being introduced on 19-Nov-08.
Best regards,
Ray
Hi,
When you talk about shorting an ETF or stock you are talking above my pay grade. Never did that. Never understood it very well. Good thought though.
Regards,
Ray
Thanks, Aimster.
You have put a lot of work into this. I can see where something like this would be very time consuming. Suppose it could work okay with individual stocks. Believe it was designed to work with individual stocks which had recent upgrades. As you have pointed out, it doesn't work well with ETFs....even 3X ETFs.
Almost similar to the dividend capture strategy where one sells the stock if they are able to get a short-term gain equal to or greater than the upcoming dividend before the stock goes ex-dividend, thereby capturing the dividend. Otherwise the stock is held through the ex-dividend time period and sold later when the price is the same or greater than the purchase price, thereby capturing the dividend.
PayTrading "supposedly" never sells at a loss. Wonder how that strategy fared the past couple of years (rhetorical question, of course). I believe if I ever used such a strategy I would definitely use a stop-loss.
Again, thanks for the update.
Best regards,
Ray
Aimster....Re: PayTrading
I was reading some older conversations this morning about your experiment with the PayTrading strategy, and was wondering if you had continued with the experiment. If so, what have been your results? What are your thoughts in general about using such a strategy? What are its pitfalls?
Thanks.
Best regards,
Ray
Hi Aimster,
Great idea for sort of a "swing trading" type account....an account that one does not intend to hold more than a few days, or a few weeks at the most.
In the past I traded the 2X 200% Long and Short ETFs from ProShares in almost this manner. Not with the intent of buying more funds, but with the intent of making some quick profits. I have only done this in a trading range type market. In the past I have used the Wm%R technical indicator and a 21 day moving average to decide whether a 2X ETF was in a very OverSold condition before making a purchase. Purchased them using a contrarian, countertrend strategy.
Since we might be in this trading range market for some time, because the market has come a long way in a relatively short period of time, and as the economy gives us simultaneous "green shoots" and "dead grass" economic indicators almost every day; a "swing trading" approach to take advantage of the Zigs and Zags caused by the uncertainty of investors, might make us some quick profits.
To emphasize something you mentioned; since this involves a lot of trading, one should only do this in a tax-sheltered account.
You have given me something else to think about in the use of Ultra-Long and Ultra-Short ETFs. Thanks for the idea.
Ray
Thanks, Aimster.
If I am reading the results correctly it appears that AIM-HI would have beaten both the Original AIM and AIM 67/33, but not Buy-and-Hold. It appears that the AI Optimizer, which had a Hold Zone of around 116%, with really Large Minimum Transactions, would have beaten Buy-and-Hold. Is that correct?
Clive makes a really good point about it all 'depends' on when one begins their program. I don't know what the V-Wave or Idiot Wave were advising for cash limits in October, 2007, when the Dow and S&P were at all time highs, but I am sure they were advising an investor to begin a new program using a lot more than 20% cash. That is why I believe it is really important for an AIM investor to pay attention to the V-Wave results before beginning a new program.
Again, thanks for the information.
Regards,
Ray
Hi Clive,
Thanks for the charts and comments. I know that gold and treasuries have done well in the recent past. I just wonder how AIM-HI would have worked with stocks only (FTSE or S&P500) for that same time period. With last year's huge decline, I can't help but think that it would have run out of cash early on in the decline....though I could be wrong.
Best regards,
Ray
Hi Tf,
What you say is true. I don't care much for AIM-HI. AIM-HI would have worked pretty well during the 80s and 90s. There were a few pullbacks, but they were very mild compared to what has happened this decade, and AIM-HI probably could have handled those corrections very well. Not any more. My guess is that I will never see a bull market like what happened back then.
Best regards,
Ray
Hi Tf,
I apologize if the following post sounds argumentative or contradictory. I am writing this post with a lot of respect for your extensive AIM knowledge, which is much greater than mine.
When you described the period of 1995 to 2000 I assume that you are speaking of Mr. Lichello's development of the AIM-HI method, which he describes in the 4th edition, which was published in 2001.
Now then, I guess I am now confused about the SAFE settings for an AIM-HI program. In the past, I have interpreted the SAFE settings for setting up an AIM-HI program differently. The reason is because on page 262, 4th edition, where he describes how to set up an AIM-HI program and the spreadsheet (which he calls a chart) for tracking an AIM-HI program, he states:
“For the sake of simplicity, the Safe column has also been expunged. Safe is nothing more than 10 percent of your Stock Value anyway, and to get 10 percent of any figure, all you need do is drop the last digit: 10 percent of $2,000 is $200. Even I can do that in my mind. With a $5 calculator in my hand, I have no problem entering these figures as I go along.”
“Its possible that some of you may prefer, for whatever reason, the old AIM chart. You have my blessing to continue it”.
On page 263 of the 4th edition, he goes on to state:
“The cure took another year to develop, and its simply this: Make your minimum purchase or sale 10 percent of your Stock Value. Another way to look at it is this: The amount you insert into your AIM-HI Action column must be at least equal to your Safe figure. Thus, if your Stock Value is $2,000, your Safe figure would be $200. And the minimum figure in your Action column must be at least that much: $200. Otherwise, just insert a Zero in the Action column.”
He goes on to talk about how this now works for both a large investor as well as a small investor, because the program now works on percentages instead of dollar amounts for the minimum transactions.
Since I became acquainted with the original AIM and the new AIM-HI program it was my belief that AIM-HI increased the holding zone from 30% to 40%, thereby allowing an investor to have more in Stock Value and less in their Cash Account, because the increase in the holding zone would naturally cut down on the number of transactions……it would make the program more like Buy-and-Hold.
Personally I feel that if Mr. Lichello had lived through the two vicious bear markets of this decade he never would have invented AIM-HI.
Best regards,
Ray
Hi Steve,
Semi-dry. These past few days the weather has kept me inside for the most part.
Regards,
Ray
Great results, Steve.
Regards,
Ray
Coach,
I remember owning a book by Harry Dent about 10 years ago, entitled "The Roaring 2000s". I no longer have the book, but I seem to recall he was making a prediction, with charts, where the Dow would go to 41,000 or so, based upon demographics. Like you, this is not to put him down, but to say that "all" predictions made by anybody should be taken with a grain of salt. Just my opinion.
Regards,
Ray
Hi Mike,
I have used both 2X long and short ETFs in the past.
However, the 2X inverse ETFs are short-term trades for me and I don't AIM them, per se. I have purchased them in the past when they enter an extreme OverSold condition, like at the present time. I use the Wm%R technical indicator and a 21 day moving average to determine overbought and oversold conditions. I bought three of them this past Thursday with a small portion of my money (SDS, QID and TWM). I don't expect to hold them very long....just make some quick profits on a market pullback. Probably won't hold them more than a few weeks.
The 2X and 3X long ETFs are excellent AIM or EZM candidates because of their extra volatility. JMO.
Ray
Thanks, Clive. Constant Value asset allocation was one of the first methods I learned with respect to asset allocation 30+ years ago.
Ray
What is MyWay? I have seen this mentioned several times on this board. How is it similar to AIM and how is it different?
Thanks,
Ray
Hi Aimster,
I just saw your private message to me, but since I am not a paying member I could not respond directly to you.
Yes, I have the book. It is a very small book to begin with, plus the print is extremely large.....which I assume is to take up space. What he has to say in the entire book he could actually have said on just a few pages. That is, whatever cost you initially pay for a stock or fund then becomes your core position, or, as he calls it, your "Constant Value". Once the current value moves a predetermined amount, up or down, away from the Constant Value, you then buy or sell enough to once again have the current value equal to the initial cost of the stock or fund. He used an annual rebalancing if the current value had gained or fallen a predetermined amount during the year.
Bottom line, at least for me, it was not worth the price. Of course, this is just my personal opinion and others might find it very useful.
The reason this book was not very useful for me is because in the early 80s I was studying for a professional financial consultants designation. In one of the textbooks used in the first few courses of study, this particular method of dynamic asset allocation was adequately explained, with example graphs, on about 3 pages of the textbook. The textbook called this dynamic asset allocation method "Constant Dollar". Since that time I have read about this method in other investment books and it never took more than a few pages when it was fully explained. In other words, since I had already learned this method of dynamic asset allocation, I did not get much that I did not already know from this particular book. However, others might find it to be a very valuable and useful book.
Actually, when you think about it, Mr. Lichello's method of dynamic asset allocation is a sophisticated takeoff of this strategy of buying and selling around a core position. He modified the value of the initial core position by adding one-half of any subsequent purchase amount each time to the core position in order to buy more on the next purchase than the previous purchase, causing the core position to increase the longer one holds it and makes subsequent purchases. Thus, one takes advantage of falling prices (which hopefully will eventually recover). That, plus he used a resistance in the form of a SAFE factor, in order to be more conservative and restrained in the use of cash. I did find his book to be a lot more entertaining than most investment textbooks and it makes for some very enjoyable reading.
Best regards,
Ray
Hi Alton,
I have read his book. It is a very simplistic "Constant Value" or "Constant Dollar" concept, using annual rebalancing. No SAFEs or Portfolio Controls. Just buying and selling around the initial purchase cost once the value moves enough to trigger a buy or sell. He equates this to the "Zen" of investing. This particular asset allocation method, using a core initial cost position, has been around for many, many years. Nothing new in his book. IMO, not worth the cost of the book.
Regards,
Ray
Bob, I too have found the same thing as I researched these ETFs.
I have spent a lot of time making time comparisons and the conclusion I reached is that it is all time dependent. In some of the time periods being researched they behaved almost perfectly as expected. In other time periods a person would get about the same results as the author of that article.
It is my opinion that one should use the StockCharts PerfCharts bar charts tool and compare the results for different time periods and 'length' of time periods before coming to a conclusion about whether these ETFs are performing as advertised.
Regards,
Ray
Hi AIMster,
I know you directed this toward Tom, but I thought I might add an idea I have been toying with.
Recent history so far tells us that the VIX can climb all the way to a reading of 80 or so when there is great fear and selling in the market. OTOH, when the market is doing well and everyone is happy with their results the VIX can drop down to 10. Therefore, it seems to me that perhaps one could adjust their cash reserves based upon how the VIX is behaving.
I might be all wet on this subject, but it seems to me that if someone was opening a new position when the VIX was down around 15-20 they might want to keep more in cash.....say 50% or more. However, if the VIX was up around 50-60, where it is now, then they might want to keep only 20% in cash.....sort of an AIM-HI type position.
Anyway, just a thought of mine.
Best regards,
Ray
Hi Clive. Thanks for the explanation. Futures, managed or not, is all new to me. It is also very interesting.
Best regards,
Ray
Hi Clive,
I see where you continually say you invest in "managed futures". Personally I know absolutely nothing about managed futures. When I Google the term a very large number of websites come up for professional investment managers who want to "manage" your account. In other words, they will manage futures contracts on your behalf for a fee.
I was just wondering. Do you personally pick and chose which futures contracts to invest in, set the stops, etc? Or, does some investment manager do these activities for you?
Thanking you in advance for your response.
Best regards,
Ray
Some additional comments to the ones I have previously made.
These past few months I have considered purchasing these 2X long or short ETFs as a short-term trading vehicle (not AIM) whenever some benchmark is reached. The benchmark that stands out most in my mind is the VIX.
If one looks at a long-term chart of the VIX one can see some good entry points for some short-term trades. If someone purchased a 2X long fund, such as SSO, whenever the VIX goes over 30 then they probably would have made some nice profits in a short period of time.
On the other hand, if someone purchased a 2X short fund, such as SDS, whenever the VIX reached a low reading of less than 15, then they were usually rewarded with a quick profit.
However, these purchases would only be for a short-term trade, not like an AIM holding, which is held for a much longer period of time. Once a certain profit target is reached...say 10% or 15%...then these ETFs would be cashed in.
With that in mind, now that the VIX is over 30 I cashed in one of my income funds today and used the proceeds to purchase SSO. I have put in a GTC limit order to sell all shares of the fund when it gains 15%.
Others might feel differently than me, but I would not use these 2X funds for anything other than a short-term trade. There is just too much potential for downside risk in these funds to suit me.
Best regards,
Ray
I will take the first shot at this.
In the past I have traded these 2X long and short ETF type funds from ProShares. I haven't owned any since last fall when I sold out on that strong rally.
They seem to work well whenever the market is in a trading range. You can pick up more trades than normal because of their inherent volatility versus the average actively managed mutual fund or index fund.
The problem occurs whenever there is a market meltdown as we have seen recently. Whereas a stock can only go to $0, with these funds and the leverage they employ, they can continue to fall further. In a market meltdown like we have seen your cash will be burned up in a hurry.
Again, these are good investment vehicles in a trading range type market.
Anyway, that has been my personal experience.
Best regards,
Ray
Hi Wim,
Welcome to AIM.
I really don't know how to respond, mainly because I don't understand anything about puts and strike prices. That subject is way above my pay grade. You are much further advanced in investing than I am.
I was responding to Toofuzzy's remarks when he said:
"If you PRETENDED you had an energy AIM account but didn't buy anything as the fund you picked went down you could let AIM buy in. If it went up you wouldn't have lost anything since I am assuming you don't have the funds to fully invest in a new AIM account at the moment."
My thoughts went something like this: Suppose I felt that stocks in the Energy sector were too highly priced at the moment, but I wanted to eventually buy into the Energy sector when the price got cheaper. I could just set up an AIM account and instead of actually buying shares in an Energy ETF, I would just pretend that I did make a purchase. Instead I would use 'Virtual' shares in my AIM program until I actually bought shares as the price fell.
Therefore, as the price fell, I would purchase actual shares as directed by the AIM formula based upon a program initially funded with Virtual shares.
With respect to sell transactions I really haven't given that any thought, because I wouldn't have purchased any "overpriced" shares in the first place (based upon my evaluation of the energy sector).
I don't know if this helps explain my response to Toofuzzy.
Best regards,
Ray
Hi TF. That is an interesting idea you put forth.
From my understanding, if I read your suggestion correctly, it appeared to me to suggest that a person begin an AIM account with 100% Virtual Shares. If that is correct, then that is an interesting method of tracking a stock or ETF one wanted to purchase, but felt that it was too high at this particular time.
Best regards,
Ray
Hi Clive....I like what you have done with the GTC limit order calculator. An investor has the option of either computing a Minimum Trade $$$ amount or a Minimum Trade PC Percentage amount. Very clever. Thanks.
Best regards,
Ray
Hi Clive,
Since you explained it this way I now see what you were discussing.
Thanks,
Ray
Clive, I have been giving this subject some thought.
The classic AIM program would have an investor increase their Portfolio Control by one-half of each purchase. To avoid the "Lichello Flaw" an investor would need to progressively increase consecutive purchase amounts to accomplish the goal of Mr. Lichello. In looking at The Book and the 10-8-5-4-5-8-10 exercise by Mr. Lichello, I see where his first exercise Market Order was $600 and his ending exercise Market Order was $260,601. Quite a bit of difference created by increasing the trade size progressively.
However, by keeping the same minimum trade amount each time then why bother with increasing the PC by one-half of the purchase? Why not just keep the PC the same throughout the entire program? Instead, why not just perform a "Constant Value" or "Constant Dollar" or "Core Position" program instead of an AIM program?
Rhetorical questions....just thinking out loud.
From what I can see, AIM is a sophisticated derivative of this Core Position type program. The major difference, to me at least, between AIM and a Constant Dollar (Core Position) type program is that AIM increases its Portfolio Control (Core Position) with each purchase, with the idea and thought of progressively increasing future trading size amounts; whereas the Constant Dollar/Core Position type program trades around a fixed dollar amount which never changes. By keeping the Core Position (Portfolio Control) at a Constant Dollar amount, then trading a fixed capital amount trade size makes sense (at least to me) if one wanted to keep their capital trading size amount the same each time they trade.
Just my thoughts on the subject.
Best regards,
Ray
FYI: 3X Bull & Bear ETFs---
Came across this article from the Index Universe website:
http://www.indexuniverse.com/sections/breaking-news/10/4080-direxions-triple-threat.html?utm_source=newsletter&utm_medium=email&utm_campaign=IndustryNews
Just passing it along for whatever it might be worth.
Regards,
Ray
Hi Alton,
I have owned SDS, DXD, MZZ & TWM in the past. These were first purchased with the thought of AIMing them....a counterbalance to my long positions. However, after owning them for a short period of time it became clear to me that these inverse ETFs are good only as "short-term bets" against the market. I made some money with them last fall, but I think I was more lucky than skillful.
It seems to me that the best time to buy these is when the VIX (the Fear Index) has a reading down around 13 or even lower. That is when most investors are complacent and expecting a current bull market to go higher. Even then you could end up holding these ETFs for a long time before you see their intended effect. The VIX has a 19.73 reading this morning before today's markets open for trading. So now does not seem to be a good time to buy one of these inverse ETFs. Just my opinion. Here is a link to a VIX chart. Notice the low readings that occurred before we enter a significant market decline.
http://stockcharts.com/h-sc/ui?s=$VIX&p=D&yr=3&mn=0&dy=0&id=p63938085200
If you think about it, this strategy is not the same as long/short hedging. By that I mean you are not shorting any of your long positions and using the proceeds to add more to your long positions. There are several new mutual funds which follow a 120/20 or 130/30 strategy. For instance, Fidelity has recently introduced a new 130/30 mutual fund. Its symbol is FOTTX. There are a few others around now. They will short sale 20% or 30% of the stocks in their portfolio, which they believe will decline in price, and use those proceeds to add to their existing positions in those stocks which they believe will outperform in the future. However, unlike these long/short mutual funds, whenever you buy one of these inverse ETFs, you are doing so with money from your cash account and you are not adding anything to your long positions. With respect to an overall portfolio value, you are actually reducing the effect of any long gains and will continue to do so as long as your long positions gain in value.
If the long-term bias of the market was not upward, then this would be an excellent strategy to use. Unfortunately it doesn't work that way unless we go into a protracted, drawn out bear market as we did from 2000-2002.
Again, in my opinion, these are good "short-term" bets, but unsuitable for long-term AIMing purposes. Just speculative bets which you hope works out for you.
JMHO from someone who has owned these in the past.
Best regards,
Ray
Hi Aimster,
Thanks for the information.
Best regards,
Ray
Hi Aimster,
I went over to StockCharts Point & Figure charts section. There does not appear to be a "Linkable Version" tab for the PnF charts that you find on the line, bar & candlestick charts. Guess there is another way to post PnF charts, or else I am probably overlooking something.
Regards,
Ray
This is a test....only a test.
Yeah! It worked!
I tried it with a PnF chart, but that one did not post properly.
Ray
Hi Al,
That is a good subject to discuss about this time of year.
Historically most of the severe market declines have occurred during the summer months. A newsletter writer, Sy Harding, has developed a strategy around the so-called "favorable" and "unfavorable" months. Here is a link to his website.
http://www.streetsmartreport.com/index.html
I could be wrong, but I think he uses a technical indicator with the Dow, like the MACD, to determine the actual exit and entry dates instead of relying strictly on the calendar. In other words, when the calendar gets close to May he would use a technical indicator to decide when to exit the market. The same thing would be done when the market gets close to November for the entry date.
I believe that the Stock Traders Almanac folks do the same thing with a MACD technical indicator. Here is a link (I hope) which shows a table of their results using a MACD technical indicator with the so-called favorable and unfavorable seasons, instead of relying strictly on the calendar.
http://www.stocktradersalmanac.com/sta/research_tool_MACDEntryExitDOW.jsp
With respect to using that strategy this year, I would be a little leery of using that strategy myself. The reason is because the overall market has been less than stellar during the past six months. It could possibly take off and get some good results during these upcoming summer months. I think the same thing happened in 2003. Back then it wasn't doing so well during the winter months and then it took off during the summer. Someone sitting totally in cash lost out that year on a good bull run.
JMHO.
Best regards,
Ray
Tom,
Thanks for the information. The reason I have interest in this subject is that the longer I am in retirement the more I am converting over to high yield funds. They seem to be the best investment for someone in my position. They pay the high interest, plus they have enough volatility to occasionally pick up some trades.
Best regards,
Ray
Re: Fraternity Account:
Since the Fraternity Account is very heavy in high-yield funds, I am assuming that it is less volatile than a growth stock fund. Therefore, I am curious if you take the indicated trades as they appear, or do you wait 30 days between consecutive purchases?
Thanks,
Ray
These have been very interesting posts.
Regards,
Ray
Hi Evil,
Maybe some more experienced in AIM than I am can chime in here.
What had been discussed was whether studies had been done about the benefits of implementing purchases when the AIM algorithm indicates a purchase should be made, especially if a previous purchase was made just a few days earlier; or, whether one should delay making consecutive purchases for at least 30 days. Lichello even spoke about this in his book (I can’t remember exactly where….would have to look it up).
When AIMing a volatile, deep-diving security that is rapidly dropping in price one can run through their cash account very quickly if they make purchases each time the AIM algorithm indicates.
My response is that I feel this is more of a function of the volatility of the portfolio. If one has a low volatility portfolio of mutual funds, such as I do, then AIM directed purchases are few and far between, and the 30 day rule has no real value.
However, if one were AIMing a “deep diver” stock, like Bear Stearns, for example, then they would have used up their cash in a hurry and the stock could continue to keep falling. By delaying consecutive purchases at least 30 days, you allow time for the stock to consolidate and possibly form a bottom before you begin spending your money “like a drunken sailor” (Lichello’s words).
As I said, perhaps others can join in and perhaps help you here.
Regards,
Ray
I will take a stab at this.
It seems to me that the freqency of trading should be more dependent on what kind of portfolio one maintains than on the time frame involved.
My own portfolio is a very conservative, boring mix of diversified funds and high yield funds. Occasionally I will buy a stock or a sector ETF, but not often. As a result, I take whatever sells or buys the market and my funds offer, whenever they are offered.....which isn't very often. I doubt I will ever see sequential buys within a 30 day period. Heaven help us if I ever do see sequential buys within a short time period, because that would probably mean the entire market was having a major melt down. It wouldn't be pretty.
However, if I was AIMing some volatile individual stocks then I would probably use Tom's rules of having 30 days between sequential buys.
Ray