is retired now but still kicking like a horse!
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Hi Tom,
Glad you ask. This gets us exactly to the heart of the matter. It’s good that you used the biotech example for the question. In this Risk/Reward issue I use my Cancer Cure story.
A research scientist finally synthesises a medicine that cures cancer...It works!...The test were 100% effective(its only a story!)
The scientist finds a venture capitalist and proposes to manufacture this medicine worldwide...Approvals for sale and distribution are in the bag.
The venture capitalist eliminates all the possible things that would make the venture fail. The fact now is that this venture is essential risk free. It's a sure Fire Start-Up that will produce big profits. This biotech is risk-free because all the risks have been eliminated. It pays out big profits just because it is a Sure Fire Thing....
The public(and a lot of people in the investment world) don't know that this Start-Up is a Sure Fire Thing and classify it as a high-risk venture. This is how the usual interpretation is created that high-risk ventures create high profit, as if it was an iron clad rule. This is the fallacy.
If we would examine all the Biotech ventures that were successful we would discover that they were successful because of the fact that al the elements of success were there. I we examine all the failures we would find the precise elements that caused the failure.
Whether a real venture is risky or not depends on its actual construction. The statistical risk of biotech ventures that is perceived by investors is a different ting altogether, and consistently making big money by investing in the biotech industry is only possible by having a good understanding of the company you are going to invest in.
All this means that profits are made by virtue of risk-elimination, not by putting money in high-risk ventures.
Conrad
Hi Karel,
I beg to differ that it is a semantic misunderstanding. The real difference that lies at the core of the argument is the difference between the superficial risk that lies as veil over the investment world(in the way the general public believes it) and the risk that makes something fail.
An Aeroplane with a bomb on board that is set to explode at some predetermined time, with a timer that is not defect, will almost certainly explode. Yet may be 500 passengers happily boarded the plane, believing that this flight was as safe as the previous one.
That's a different kettle of fish than effective Risk Management, in which the specific goal is Risk Avoidance.
In regards to spending some "heat", a speed skater or Marathon runner doesn't get the Gold Medal for minimizing his efforts.
Conrad
Jonathan,
I am not all and never was,upset that you called me a mathematician. It was a compliment!. I have been called worse in my life and never got upset about it either.
What upsets me is that a lot of simple and honest people in this world get ripped off by rich vultures in pin-striped suits that use their silver tongue to make little old ladies invest their savings in fraudulent schemes. That makes me boil over with anger.
For a big portion of my life I grew up in Canada. A "sucker" is, as I learned it there, a person that falls for a phoney scheme that is presented by an apparently trustworthy person. In that sense the word in no way implies that suckers are "stupid". As for the word "idiotic" it referred to the essence of the Risk Pyramid. Not to the people who believe that this idiotic construction is to be taken seriously.
With this as background it means that investors that can produce good results consistently, like you, can effectively screen out the risks that they run when they venture to invest. That means that they(and you) skillfully avoid risk so that their investments will perform well.
The fact that you are able to do this proves that you understand that profits result from risk avoidance rather than from risk exposure that is preached by the idiotic Risk Pyramid. I urged you to smell the coffee because you appeared to have been sidetracked into holding an untenable belief.
In so far any reader may have felt as you did, this elucidation could serve to clear the air.
Conrad
Hello ErgoSum,
OK, the fact that ENRON may in the end be picked up at 10 or 5 cents on the dollar was not relevant in my critique on the Risk Theory that is used to imply that high profits depend on high risk. This erroneous theory gets a lot of inexperienced investors in high risk stocks without knowing the real facts behind the companies in which they buy shares.
Investing in penny stocks can be very profitable, but that means that some of these stocks have potential and buying those that blink out because they are going to make it is not at all risky. Among the penny stock buyers are gamblers that buy worthless stock and there are smart cookies that recognise a good deal if they find one....Note that I say find instead of see!
I do not agree that stocks by nature are risky. Many stocks represent sound enterprises that are by nature not risky at all. Then there are also stocks that are fundamentally very risky and are more like a roulette wheel. But that is a discussion that will not be proper for this Board, as it would diverge into a discussion on the Darwinian basics of why people survived as long as they have. Let's just say that investing is a game in which most players from the public domain have no information on the risks involved, and are hoodwinked with lies that are embodied in the Risk Pyramid.
Regards,
Conrad
Hi Cowboy
You proved again that you are not lost!
I am sold on your suggestion. The word Set Point
will no longer cross my keyboard again when I write about AIM.
I will even keep the name pc in my Vortex AIM as a tribute to Lichello that got me on his bandwagon!
Conrad
Karel,
I never thought of that!
Good point. Maybe all the tabs will be retained...but then this might aslo work for Word text.
I will try it.
Conrad
Hi Karel,
Your point on the name pc[/b or sp is well taken: It does not matter what we call it. It does the job just the same. It is however important that in order to make judgements as to what it does we need to understand it function.
On your second point you might misunderstand the essence of that I wanted to demonstrate. The objective of the Vortex AIM is not to operate specifically such that it has any operating points in common with an Lichello AIM. The parameters must be set such as to creates optimum performance and that means that for each system you would ultimately end up with a unique set of parameters... this is obvious as the two systems have different parameters. If then there is, or is not, a point at which the Buy Order is identical for the two systmens is irrelevant. It is the profit that one can make, that is important.
The conclusions on the example was intended to show some fundamental difference in the cash disbeursement for the two systems. It means nothing else.
The negative aggression factor was simply a result of the particular comparison. With a positive aggression factor the Vortex AIM can of course buy as aggressively as you want.
Regards,
Conrad
Hi Jonathan,
One of the interesting things of talking about investing(or any other important issue) is that it can expose fallacies that many people take for gospel truth. Your comment below is an example of such a fallacy.
So clearly, it's a matter or risk vs reward. Classical economics holds that profit is the reward for taking risk. AIM helps us manage that risk -- a much-overlooked point in my opinion in these discussions.
The assumption that profit is the reward for taking risk is such a fallacy, yet the entire financial community that is promoting the public to participate in the stock market uses this blatant lie to get people to act on their need to make it big...I bring Jim Jones(Guyana Massacre) into the picture: With lies he hoodwinked people to their deaths. These people were victim of not knowing the facts behind the lie.
The ultimate reward of risk is loss! If you do not believe it go to the casino and take some long runs on investing money on the Roulette Wheel.
The Biggest Lie in the investment world is called the Risk Pyramid, which promises with a Jim Jones-like falsehood hidden from view that investors will make the biggest profits when they take the biggest risks. How ludicrous!
Only uninformed suckers fall for an idiotic proposition...they fall for it because they know nothing about causality and believe the lies that are spun for them by crooks so these people will put up their savings for highly risky schemes...most of which will fail...because they were highly risky, or fraudulent ventures.
The truth of the matter is that risky schemes (read investments) fail because of their inherent risk. The ENRON example serves perfectly to illustrate the utter fallacy of the "Classical Investment Lie" of Risk Taking: At some point in time the fundamentals of ENRON were such that the company was beyond salvation. According to the Risk Pyramid it would have been a perfect time to invest in ENRON at the very moment it became known that it could not be saved: The high Risk would certainly guarantee high profits...according to the Risk Prophets!
Jonathan, come off it and "smell the coffee"...I can't figure this one out but it sounds good. Maybe coffee is the ultimate drug that makes people see the facts of life as they are?
Successful investing is achieved precisely by Risk Avoidance...not by investing in high-risk situations.
Another example: Jonathan, would you step into an airplane knowing that it had not been maintained for 5 years, knowing that the pilot was as drunk as a skunk and that he had to be carried on a stretcher onto the plane? I think you will not. You would think it might be a bit too risky.
Planes that are well maintained, and are flown by sober skilful pilots, as a rule do not crash. Only unknown risk factors that enter into this safe situation may cause a crash.
With investing it is no different. Investments that are inherently safe will perform well. Investments that are inherently risky will fail on the average and investors will lose their money, on the average. High-risk ventures will fail more often than low risk ventures.
That's the way it is!
The biggest long-term winners in the world are not winners because they exposed their money to high risk but because they shielded it from risk: they invested it in the ventures for which the risk was the lowest of several choices.
The only aspect that enters into this argument that explains why the Risk Fallacy stubbornly remains alive and well is that the general public cannot see under the covers to figure out how it is done....I mean they have no idea what risk actually means. They see successful winners that apparently risk their money and these winners are seen as gamblers. Presto! In order to be successful you should risk your money...so the gospel goes.
Lets drink more coffee. Let's bury that damn Risk Pyramid
Conrad
Hello Husk,
Your question is of course a legitimate one, but the essence is that for this issue you do not have to look at your AIM...you just need to follow the stock market, and if the stocks move beyond what you expected you can run to you Aim( or to your Broker) and initiate a sell or a buy on the large move. It is even OK that you as an AIMer would use the system as a Day Trader. If you only look at the stocks once per day you could miss a big move during that day. All you need to do is to tie you AIM Program into a live stock price provider.
As to your question about the Bigger Profit on Tomorrow's Price, that is a problem for any trader and is not an AIM problem. It is an Investment Problem.
Waiting for a Big Kill that happens once in a while is one way and taking regularly small profits the AIMWAY....Not to be confused with AMWAY!!!!
Conrad
Trying hard to figure it out....using [ pre ] and [ /pre ]
tabtabtab tabtabtab it works
234524343 512006757 no kiding
12345 12345 12345
12345 12345 12345
Tom,
Who cares?
Conrad
OOPS
I meant 0,02 Euro...not 0,02 EuroPenny
(I am still trying to get used to this Funny Money)
Conrad
Help! I am AIMing, Now What?
I bought stock at 0,02 penny...that is EuroPenny....(AND International).
Beautiful Volatilty. Several times a day it jumps down to 1 cent and then up to 2 cent...I should be a Minute Man Trader on this but I have not yet managed to sign onto any Day Trader system. Oh well, somehing for the future maybe.
My problem is this: When the stock jumps back to 1 cent I get an Buy Oder of 4345785 shares. That's fine as it goes, but what trick can I use to make the stock go to 0,2 cent? My AIM shows I will then be abe to buy 13 times as many shares and I will own the company. Mind you, I do not want to do anything that will look bad in my Function as the new CEO.
What is an honest guy to do?
Conrad
Hi QP,
Thanks a lot for the gracious attempt to help me out. I will study the stuff on your message. It looks like the General Relativity Theory to me, with the Cosmological Constant replaced bij some weird function. I need lots of coffee to digest this stuff.
I already tried to paste a Word document with tabs in it but they vanish just the same.
I shall hang on and persevere a little longer. A few years ago(1975) I used to program Fortran and Basic on an Online system with a telex and saved my program on the Yellow Ribbon, but I remember nothing about any problems with tabs. I simply tabbed the tabs on the keyboard and the tabs were tabbed onto the printout later.
How big a problem could it be today?
Conrad
Thank you Sarmad...Tom..Karel...Are you All Ear?
I hope the TAB feature will be included or that
I am told how to do it. I bet Karel knows how it is to be done!
Thanks again,
Conrad
Hello Karel,
Right On!!! You have hit the nail on its Head. Also you appear to be more able to represent things on this board with more skill than I have...I struggle with stupid Tabs and SPACES that vanish from my text... and I am impressed with the ability with which you are able to put a graph on the screen. I am going mad with frustration. I am going to look for a chair and jump!
Back to math. You are able to call a spade a spade. Your explanation is factually correct, and as I showed specifically with my example, the Lichello AIM is a more aggressive buyer for values of y larger than the Reference Point(where L and V produce the same Buy). This is an interesting point, although I did not identify this feature before. Lets call it a Vortex Feature and not a Vortex Flaw!!!!
I agree 100% with you on your terminology of the translation v.s. Scaling...in the same way we can make the centre of a circle or sphere translate on the coordinates in which it is defined...but how does the word translation add any meaning in the Lichello context? A new thread? What is being translated? The effect of the SAFE is the Size of the BUY.
Aside from this new question the important Issue that is raised is if this Vortex Feature is a good one or not...and this will depend on what is meant by good. We must be careful not to mix up human concepts of good and bad with mathematical significance... If I die the undertaker will be glad for it...It good for him...I like to believe that there may be some people that are sad when I pass on. Let's be careful with terminology that has no mathematical significance
On this AIM board there have been numerous people that have addressed the Lichello AIM Problem of rapid depletion of the cash for sustained price drops. Now I have shown that, relative to an Identical Buy Rate at the limit of the First Approved Buy Order, the Vortex AIM dispenses cash more slowly, allowing more cash to be disbursed at lower stock prices. For sustained price dips the Vortex feature proves to be effective in conserving cash. Moreover the Buy Lichello Buy Advice produces smaller Buy Orders...and even Sell Orders for values of Y smaller than the Reference Point Y-value. In the analysis I have used figures such as SAFE 10% and the Reference Point at 20%.
This means, quite interestingly, that if the Lichello SAFE also defines the Dead Zone then the Lichello AIM produces smaller Buy Orders than the Vortex AIM between the Dead Zone and the Reference Point. So, depending on the volatility of the stock it is possible to define an Activity Zone in which the Vortex AIM produces strong buy-activity for low volatility and weak buy-activity for higher volatility.
I would appear to me that this feature is exactly the answer to the prayers that I have been hearing. I would like to call this an optimal cash disbursement feature. With this in mind it should be taken into consideration that with the setting of the parameters this feature can be made as strong as one desires, and the Reference Point can be set anywhere outside the dead zone.
At last, Karel states an interesting conclusion. That is that the pc in the Vortex AIM does not control the Portfolio but that in the Lichello AIM it does. That needs examination:
I could justly argue that for an ENRON Portfolio the Lichello Portfolio Control did NOTHING to control the portfolio value...in fact, a strong Buy Advice, for the ENRON Faithful, caused the ENRON Portfolio Wipe Out...ENRON AIMers, like the faithful followers of Jim Jones...had nothing thing to prevent their investment from vanishing.
What does a pc in an AIM actually do? And what name can be 100 % descriptive. In this we could...but we do not have to...make the link to an industrial control system. The most immediate thing that comes to mind is Set Point. The SP is never called a Process Control as that name refers to the total activity of what a Process Controller...PC...does. Lets call a spade a spade.
The SP in a PC simply is a reference point at which the process is at its target position. When the process deviates for the defined target position the Process Signal...PS... is compared to the SP and a Del Signal...DS... is created:
DS=(Sp - PS)
This Difference Signal DS is the principal process control factor...not the SP !!
This Difference Signal compares with the AIM Advice, which for the Vortex AIM I called the Buy Signal.
In both the industrial controller and in an AIM is the Buy Signal processed to create a Buy Order and this can be dome in many ways. The Process Unit...PU...of the controller modifies the DS into an Action Signal...AS.
Here the analogy is complete...and as far as this is so, there is a 1 to 1 correspondence jumping out at us: An AIM is in fact a conventional Control System. Not More and not less.
In conclusion, the pc in an AIM does no more control a portfolio than the SP does in industrial controllers. Moreover, the various ways in which a SP in a controller can be modified in no way changes its function as Process Reference Point. The important thing here is that the nature of how the difference signal is processed will determine the performance of the control system.
From this I conclude that the pc in the Lichello AIM and the Vortex AIM have fundamentally an identical function and that they their effect on the portfolio is functionally identical.
The Buy/Sell Order that is derived for the Buy/Sell Signal is what actually controls the process/portfolio.
I propose that all AIMers, from this day forwards, will call the Portfolio Control the Portfolio Set Point instead.
Simply use DS=(sp-y) instead of DS=(pc-y)
Conrad
Well, I be Damned,
I made up a table of data and agan the TABS are gone!
I give up!
Can anybody help me on this???
Conrad
Hi All (Again)
In the previous message I posted an example but that was screwed up on account of text editing problems. I have extracted the table of data. Here it is:
Example with equal percentage drop 20% for each Buy Trigger
(Using pencil & Paper):
Lichello Safe =0,1 Vortex
pc= 1000 y=1000 pc= 1000 y= 1000 F=1/(1-f)
y2=800 y2=800
Del= 200=Advice Del=200
Buy=1000-800*(0,1+1)
Buy=1000-880=120 Buy=120=F*(1000-800)-->F=0,6-->f=-2/3
y3=800+120=20 y3=800+120=920
pc2=1000+1/2(120) pc2=pc1-2/3(120)=1000-80=920
pc2=1060 pc2=y3 Always!!
It is now obvious that from here on the buys will diverge:
Price Drop 20%
2% At 920 20% At 920
y2=736 y2=736
Del=184 Del=184
Buy=1060-810=250 Buy=0,6*184=110
y3=736+250=986 y3=736+110=846
pc2=1060+1/2(250) pc2=y3
pc2=1185 pc2=846
Price drop 20%
@ 986 @ 846
y2=789...Del=199 y2=677...Del=169
Buy=1185-868=317 Buy=0,6*169=101
y3=1106 pc2= 1344 y3=947 pc2= 947
With this my point is more clearly presented.
Conrad
Banjanxed,
The site does however show how yu can make a millon dollars...or more!!! But his can be done with a Lichello AIM...as Lichello showed... or with a Vortex AIM, on the same data. The big question of curse is if the examples are made up of a real portfolios or if it is simly a rigged Example. I can produce examples like that too. All I have to do is to make sure the ficticious company with ficticous share prices does not go bankrupt!
The interesting part of this Market Wizzard websie is however that it looks like a good marketing set-up, and that aiming has likely already a wide user-base that does not present itself the limelight...all these unknown AIMers are AIMing without knowing it.
Conrad
Everybody..(Somebody),
Remarks on my attempt to demonstrate the differences bestween
the Lichello AIM and the Vortex AIM.
(The text structure on this board baffles me)
For the calculations I used two collumns but the TAB function does not work. As a result the figures for the two AIMs are printed without tab-separations!!!
In the data you can read it as follows:
If you read y2=800y2=800
Then this simply means that the left y2=800 if for the Lichello AIM with SAFE=0,1 and the right y=800 if for the Vortex AIM.
If this is not clear then I give up.!
Cheers,
Conrad
Hi all
I just wanted add a comment on my previous "Off the Cuff" conclusion with repect to the {pc-y*(s+1)} and (pc-y)*S.
I only quickly compared the two functions for a set of identical (pc-y) values. I did not consider the efffect in an actual AIM costruction. For a real test one would need to consider the fact that the pc values are set differently. So the conclusions I made may not be the same in actual use. In order to test these I have to set up set up an Lichello AIM nect to my Vortex AIM.
For now I can only say that if I understand the use of the {pc-y*(s+1)} correctly...decreasing the Buy Advice pc-y)...then my conclusion would be correct if the Buy Advive is the same for both systems. In order test this one needs to make several choices: Do we trigger trades at the same Advice or at the same Vaue Drop or the same %-Value Drop?
Example with equal percentage drop 20% for each Buy Trigger
(Using pencil & Paper):
Lichello Safe =0,1 Vortex
pc= 1000 y=1000 pc= 1000 y= 1000 F=1/(1-f)
y2=800 y2=800
Del= 200=Advice Del=200
Buy=1000-800*(0,1+1)
Buy=1000-880=120 Buy=120=F*(1000-800)-->F=0,6-->f=-2/3
y3=800+120=20 y3=800+120=920
pc2=1000+1/2(120) pc2=pc1-2/3(120)=1000-80=920
pc2=1060 pc2=y3 Always !!
It is now obvios that from here on the buys will diverge:
Price Drop 20% At 920 At 920
y2=736 y2=736
Del=184 Del=184
Buy=1060-810=250 Buy=0,6*184=110
y3=736+250=986 y3=736+110=846
pc2=1060+1/2(250) pc2=y3
pc2=1185 pc2=846
Price drop 20% @ 986 @ 846
y2=789...Del=199 y2=677...Del=169
Buy=1185-868=317 Buy=0,6*169=101
y3=1106 pc2= 1344 y3=947 pc2= 947
Fronm this, with a Trigger at 20% price drop,it can be seen that the acquisition rate of the Lichello AIM is much greater than the Vortex AIM, relative to an identical start-out rate
@ the first Buy on the Buy Resistance of 20% . Using an earlier Starting point @ a Buy Resistance of 10% gives similar effects(In this example the SAFE and the Buy Rsistance are not identical)
It would of course be possible to Trigger the Buys at an equal Buy Advice and then the effect will be as discussed earlier. It is obviously also that the Price Drop % Trigger can be identical to the SAFE %
From this atleast Three important conclusions can be made:
1 The Vortex AIM dispenses, at these settings, cash slower, allowing more cash to be spend at lower prices...if the price drops continue to that low level that all cash is used up.
2 The Lichello AIM dispenses more cash early on, and this would be more effective if the price drop reverses early.
3 If the Trigger for these settings would be lowered, for example from 20% to 10% then the Vortex AIM would spend cash more aggressively than the Lichello AIM. This would make the Vortex AIM more effective at low volatility(If the Buy Trigger is lowerd from the reference point at which the Buys are equal). As a matter of fact, using Buy=pc-y(s+1) in the Lichello AIM would generate a Sell Advice as the value of y*(1+s) will become larger than pc.
This does in no way prove that the Vortex AIM is any better than the Lichello AIM because the parameter setting for Deep Dives is not effective for Shallow Dives...
The general conclusion is that for effective performance the parameter settings will need to be adjusted to the type of stock, and these settings will be quite different for the the Lichello and Vortex AIMs. If the one system will outperform the other will entirely depend on the ability of the Operator to select the best parameters for the type of stock he is investing in.
Comparing Apples with organges remains difficult.
Regards,
Conrad
Hoee
Banjanxed,
I have looked at the Market Wizzard of Traders Direct. It certainly is an AIM-Like propgram. I wonder if Anyone tried it.
At $149 it appears cheap.
Conrad
Whow!
Hi Karel,
It is amazing how little things grow into big ones. If all of us would sit a table sipping a beer or something stronger. This disussion on (s+1) would not have gotten out of hand and my point would have been expained in two minutes flat.
Anyway, it did lead to a conclusion, with my simple calcuation,
the the Lichello Buy is more aggressive than the Vortex buy if the buy is delayed to below the target-buy, and that the Vortex buy is more agressive is the buy is done before the buy-target is reached.
Take it from here!
Conrad
Hi Karel,
I think this discussion goes off on a tangent. I think there is no need to make it more simple than it is. I explained it to Barry but I think it should be commented on:
All I meant to convey is this
pc-y*C1 = (pc-y)*C2
is true voor any given SAFE C1 and for a set of PC- en y- Values. For example in case y had changed 20 % from the Pc
value then y=0,8*pc as could be for example the -20% limit of the Dead Zone, then values C1 and C2 are uniquely defined as fractions of each other.
My conclusion was that the form of the Lichello Order is simply (pc-y)*S
It is clear that I did not mean to say that the two constants would be the same for all values of y. That was not the focus of the discussion. The point to be made was that in the Vortex Method I simply used a multiplier on the Buy Advise to make the Order bigger or smaller.
In order to compare the effect on the resulting Orders one simply has to select a reference point at the Dead Zone Limit and select a Lichello Safe and A Vortex F that gives an identical First Order at that Limit:
OK here we go:
SAFE 0,1 Pc 1000 y= 700 Here the SAFE may also be called 30% if you like. The idea is the same.
From previous information the Lichello definition this would be
1,1*700=770 Then Buy = 1000 - 770 = 230 (if this is the correct way of using the Lichello SAFE)
This would translate to the Vortex Buy F(300)---> F= 230/300
From this point onward we simly calulate various Orders at different y-values.
You can make your own conclusions on this. On firts sight it would appear that as the stock price drops that the factor 1,1
on the stock price has a diminishing effect so that for y=0
the Lichello Buy is 1000 and for the Vortex Buy = 767.
This means that when both systems start out with a buy at 230,
at y=700 and the next buy would be at a progressively lower price drop, then the Lichello system would run out of cash before the Vortex system would. This would require an additional parameter to create delays in the buying. If one did this then you woud effectively conserve more cash with Vortex to buy stock at lower prices.
Now, if with these setings the price fluctuations are small and the Buy Limit woudl be lowerd so that buys are generated at a y-value of 800 then the Vorted Buy would be bigger. This means that cash is invested more effectively.
A single comparison does not prove anything. If the system would only trigger sales at proce drops of 300 then the two systems would perform equallly well. It is only when the buy
order limit is changed up or down(without) changing the SAFE or the F-factor) then then Vortex Method does better on the Buy side by conserving the cash longer...but this only helps for sustained price drops to beyond cash depletion.
Conrad
PS
This might create a flurry of responses. I am running behind already so I might not respond very quickly.
Hi Barry,
I am running a little behind...(If you miss two days there 100+ messages to read)
I think smething isgone wrong in the text someplace. The idea tis this:
The Lichello Buy Advice =(pc-y)
If the SAFE is(as a fraction) s then the BuySell Order is modified by a factor(1+s) and that can be a reduction or an increase(your choice, depending on how you define the SAFE). The point that you state pc-y*(1+s) makes no difference for it has the ultimate effect that it still produces a fractional change on the Buy/Sell Advice as pc-y*C1 = (pc-y)*C2. For any given C1 or C2 the other unkown will be found.
This is the conclusion:
The form of the Lichello Buy/Sell Order is simply a linear proportion of the Buy/Sell Advice. Hence Lichello Order = (pc-y)*S and you can define the "S" from the SAFE any way you like. That being the case my conclusion was that the Vortex form of the Order was identical with F*(pc-y). The only difference in the use of my F*(pc-y) is that I calculate it from an aggression factor instead of from the SAFE. I use a Buy/Sell Resistance in the way Lichello uses the SAFE in order to revent buying or selling too soon. The use of F*(pc-y) simply allows me to make the Orders as big or as small as I want it, and buys and sells can obviously be made different as well.
I think this will clarify it.
Conrad
Hi Jonathan,
How was the coffee?
Conrad
Sarmad,
I think that you are a little too sceptical on the issue. First of all Lichello clearly stated that he never tried to make a millon with an AIM(but he may have done t selling the books and doing othe things). He clearly stated that the Aim was mechanism that could do it, if you had patience enough, and if a stock is bought that wipes out then that is the fault of the stock, not of the system. The same thing with the compound interest example that Mark presented...I think it was Mark anyway. If you try and then take out the money to buy a bigger house then in 40 years the compound interest method of saving will not get you that million or 2. If one saves the little money systematically then you can not buy the things you might want now.
Now the other THING. Stock Selection for AIMing is a completely separate thing to do. If you learn the technique of making money with options you hear about people who made millions with it.
About the lossers your hear a lot less, or nothng. There are no TV programs or cources that will focus on How to Lose A Million Dollars. If you want to learn how to pick good stock just read up on how Warren Buffet became so rich.
The most you can criticize Lichello for is that his book is stuffed with a long winded stories that could be told in half the number of pages..and the Title was simply to attract sales...Suppose the book was called: How to make a Little Money and sometimes lose it
Conrad
Hi LemmonHead,
I am beginning to like you. Maybe be this name you use on this Board not your real name. I bet you are Rodney Dangerfield.
Keep it up.
Conrad
Hi ET,
I would say that this happens all the time. Some people sell a on old painting on the flea market and then they see on TV that is was worth 1000 grand. Some people get inside information and think it is a red herring and forget about it.
Some people think that a company that is not operating properly and is losing money has no potential while in fact it may be a gold mine. If you want to get out of that predictment then you have to read 3...or more... Financial Reports per day and then you can pick the Gems...if you can read such reports.
That's the way Waren Buffet does it. It's very simple, but understanding such reports may not be simple.
Of course, cutting risks in an invesment is the key to good investing, but this not automatically mean that if a stock price is high that it is risky to have shares in it. Often it is just the opposite...the stock price may be high because they are not risky at all! Keeping them and buying more of them all te time can pan out quite well.
Banjanxed,
This Board is killing me. Buts it is fun. The problem of running out of cash is universal for any investor that dares to invest in a Bear Market(I think I got it right this time...When I was kid I was chased by a real nasty bull one day when I simply walked into the meadow that was his domain. It scared the hell out of me and I ran a half-a-minute mile to get out of there. This bull had his head close to the ground ready to kill me any which way he wanted to. As is evident, my lightning speed saved me from a horrible death.
So, the trick of keeping your cash till the bottom of the market is not an AIM issue. Within the framework of the AIM we can focus on fool proof methods to improve the standard AIM by stretching the money you have...any systematic method that is price-driven and allows you to stretch the money you have to the away from the beginning of the price drop will help you. How you implement it is simply a technicality...if you are smart enough to notice that already two drops have occurred then you can increase the buy order size. This can be dome automatically as well. That is the point. How effective that is done depends on how complex you want to make the system. There is not one solution.
The Vortex Program is not available in English yet. I want to mention that this acceleration "thing" is not yet an automatic feature of my program. The method at this time is simply using a low aggression to start out with and as the volatility of the stock lends itself to it(sustained drops) the parameters are adjusted to increase the Buy Resistance and the Buy Order Magnitude. In my Dutch Book The Vortex Method I explain a method that will solve this problem more systematically and I present a method that will optimise the cash disbursement.
Now, as to explaining my methods in detail, I have gone quite far in publishing Chapter 6 of the English translation I am working on. I have an Excel spreadsheet that Lou Dina made for me and the Vortex Method can be demonstrated with it. I am still making that basis spread sheet into a form so that it will be a Functional Test Bed for the Vortex Program...and now I run into a dilemma: One the one hand I like to disclose all the details because I am like that...I like to explain things. On the other hand I am advised not to disclose all the details because no one will buy the Vortex Program if they find out they can do it with an Excel spreadsheet themselves. I will think about is some more. People that read my book will know the ideas but that is not the same as handing out a fully functional system in which all the programming details are represented. I will come back to this issue.
Hi Husk,
The fact that we cannot predict the market moves is the basic tenet of many sensible investment mechanisms, but that should not prevent one from optimising the moves that are possible. The idea is simple: As the market dives you can arbitrarily set limits on investing your cash on a certain limit. Say you think that a 30 % drop is all that the Market will Bear...double pun...then you plant invest all your cash at the 30% drop-level(unless a plane hits a skyscraper just as you are to call the broker). Your move will still be reasonably safe. Remember that after a big drop of 30% the chances for bigger drops diminish as the prices drop. You can also wait till the bottom is reached and the reversal has set in solidly.
None of this has much to do with AIMing, except that AIMing is a mild systematic form of that same basic strategy(Price Driven Investing).
Within the framework of this strategy many investment actions are simply AIM structures without carrying the name. If you read Money Managers Reports you will recognize aim-like features all the time:
"In consideration of significant market indicators and general global responses to bla bla bla bla(Usually bla's from Allan Greenspan) we have taken the opportunity to divest a portion of our port Fat Mama folio to reinforce our liquidity position. We also, cautiously, increased our position in our promising Geese Portfolio. Indications from reliable sources are that our Geese Portfolio will be a veritable goldmine within an investment horizon of 1 to 2 years"
These high paid guys are secretly AIMing and for the rest they now nothing more that you and I. Like you say, a big thing of AIMing is beating the risk-odds by virtue of keeping our head on straight and remaining sensible...at the Top of the market it is very sensible to be cash rich and at the Bottom to be fully invested. Within this framework you play the game to optimise your moves, with whatever you know.
Conrad
Hi Tom,
Your considerable insight into the matter allows you to add more qualifications on the whole idea. Thanks I agree that pulling more that a Standard Vealie increases the risk as ore cash is pumped into the AIM...but the same would have been true is you would have started with a bigger AIM, say 50 000 instead of 10 000. The Turbo Vealie would simply raise the portfolio value...you now have the cash that you did not have before. The fact that with a bigger portfolio and the raised pc there is a bigger risk is offset by the increased also add extra cash with raising the pc with 100% of the extra cash and set the pc=stock value. If the stock is doing well it makes little difference how it is done exactly. All this assumes that other options such as diversification is not desirable. Sticking with a winner is in any case a good thing to do.
Also, the idea of a cash ceiling is for me personally an unnatural thing as I have the natural tendency to invest already more cash than I have...my portfolio is never cash rich.
As for the ET-suggestion to use a stop/loss at the top after pulling a Vealie, or a Turbo Vealie, this in my view more a matter of protecting what you have gained already rather than a matter of optimising future gains. As the pc is raised in the Vealie and the stock price drops there is a new Buy Signal and that means that it would be OK to sell the whole portfolio to save it from erosion...it would still be a sensible thing do if there is any anxiousness that the drop will be very big one...taking a big profit doesn’t make you go broke.
I tend to agree that after one has made a good profit that bailing out may be quite a logical thing to do. To make a few extra dollars with a different method is then not a relevant issue...It might be a good time to do something else with the money!
Conrad
Hi Tom,
Your comment that AIM is a proportional algorithm does not automatically mean that this increases the size of the Buys(or the Sells). It does however provide a convenient mechanism to provide the buy-manipulation that I intended with the exponential buy-rate increase. Consider this:
1 I set my buy aggression lower than NORMAL(Whatever that means!) This reduces the buy intensity(Keeps more cash longer)
2 I set my buy Resistance not very high. I want to take advantage of investing some money in case the price rises again.
3 As the price dips I can delay the buying by raising the Resistance(Price/Behaviour Driven Response). This would increase the Buy Size as the Buy Advice is larger due to proportionality.
4 As the dip continues I can increase the buy-aggression and this will increase the buy rate still more.
This essentially achieves that for deep dips in the first instance the cash is preserved early in the Dip Mode and that more cash is invested in s delayed fashion...exactly as I intended.
But Mark can do the same thing with his AI by using the Beta Multiplier with a value less than 1 and then raising the Resistance and increasing the Beta as the stock dips. So, with these possibilities, I have to agree with Mark that the performance of the two AIMs will entirely depend on the choices for setting the parameters, and if we well set the parameters so that both AIMs perform equally well, or that one performs better than the other.
I think I have to realise that in this sense in a Contest the best investor will win.
In a test on two particular systems it would be necessary to find out if for real stocks it is possible to derive at a set of parameters that will consistently outperform the other system.
Conrad
ET,
The Turbo Vealie was just something that hit me when I wrote the response on the subject. I like the sound of it too. Maybe Tom likes it too! He can open a Turbo Chapter on his website..Ha Ha Ha...as if his site is not big enough yet!
Some years ago I ran an Investment club and I developed an idea of pulling some fast tricks on buying and selling Warrants when they had risen sky high(from an average 60 to 1500). So I quicly set up a Turbo Fund and got my brohter into this as well it as wel. The idea was great but did not work in practice. The Vortex Fund sucked up the Turbo Fund(merged).
Amyway, all these interesting discussions about how to invest money more effectively migrate towards general ideas about investing...if with some special knowhow you can beat the averages then you simply do it and optimise the variation....For example, if one gets some inside information then this will modify his use of his AIM(if he runs one), such as for example buying when the chickens are selling their eggs....I mean when regular AIMers are bailing out the "insider" might still keep buying. I would call this a Turbo AIMer. So, a Turbo AIMers buy from the Chicken AIMers.
Conrad
TIC
Hi Rien,
Question: Are you the same TiRien, the Dutchman? On the TMF Board I thought I noticed that there were two Riens! Just curious.
As to your remarks on the Vealie as being a buy, I would think a better definition is that the Sell one would normally execute is simplly re-invested because the stock is a good one. In that case it is quite acceptable to pull a Vealie or simply to invest more money in that stock, even when the stock is in a horizontal trading range... It is a good thng to put money in a good stock!
To pull a Vealie on the way down is obviously not effective as you miss the profit of the Sell Order if it was executed, and it also increases the Buy Advice very strongly due to the higher pc. But this would seem very obious. Did any onbe ever suggesed that a Vealie on the way down is to be contemplated?
Conrad
Hi Mark,
I know what you mean when you say
Whew! That was a much longer note than I had intended to write.
It happens to me all the time!
This time I intend to be short:
I agree with your 100%. I have not yet tested the Vortex AIM for a long time, and not systematically as you have done with your AIM. So, most things not being equal, it will be difficult to get to a point of rigorously comparing if an answer is to be found to the question "Which system is better?" In practice one would only need to define the boundary conditions. But then still, the results would depend on the experiece or "feel" for setting the parameters as the price fluctuations of the stock develop...although the ups and downs are not predictable the volatility is often characteristically high or low, and if the stock price history is known, this will give an indication as to how to set the parameters. Two people will set these parameters quite differently...no doubt.
I just want to add that although Vortex does not use a SAFE it does also use Buy and Sell Resistance. Obviously this is needed,otherwise one would be stuck with the Minimum Trade Quantity. The Buy/Sell Resistances, separately adjustable, will of course be effective in making sure that stock is not bought too early or sold off too early.
Regards.
Conrad
Re: AIM Contest.
I agree that the posting of the Input and receiving the Answers should be simple. It is the organization of the Contest that needs attention..such as defining the goals, terms and conditions and the form of giving the Output. This does not need to be very complex but if it is not done then it is easy to "argue" about it later.
I will think of making a start on some guidelines. If someone else will think of a means for posting the Input and the Output
than we will get to a point of deciding if it is practical to run the AIM Contest.
Conrad
Sarmad,
Thanks for the answer. Some things are simple indeed!
Conrad
Hello Barry,
Thank you for responding in such detail. You are correct with respect to various points. You understand the material well enough to dig that deep. I will respond point by point(hoping to keep it short):
1 Typos. Yes, this is irritating and can be confusing. It is due to the medium! Like with e-mails "writers" are often in a hurry to quickly answer "online" and this results in improperly edited text. I will try to be more mindful of the readers.
2 I agree that the flaw is not as serious as it at first appears...a diamond with a flaw is still beautiful...and expensive. In subsequent discussions I have gone on record that the "Flaw"
has some merit: When a falling stock price reverses the "Flaw" causes a sell-order delay as the rising stock price has to move through the (pc-y)-range, becomes zero and then produces a Sell Order when the signal is strong enough. This is a good effect. But what AIMers tend to say about the Flaw I cannot follow: That the "feature" could be a blessing in a decreasing market does not make sense. The updating of the pc with 1/2*Buy specifically makes the Lichello AIM much too aggressive, and that is why the SAVE is used to temper the buys. The very reason that the 50%-Buy is added to the pc results in a buy-signal that is too large...and specifically if you look at the AIM a little later the buy-signal is much too large again and again.
For the specific aggressiveness of the Lichello AIM I devised a method to get rid of the Lichello-pc-corrector and created the Vortex AIM in which the buy or sell order is exactly as large as the investor intends it to be, and in that sense the SAFE-effect is incorporated in the f-factor. The two separate factors simply control the buy and sell aggression separately, and at the same time the Flaw is eliminated as pc=y after the buy is then the result.
3 Your conclusion on my method is generally correct, except that with the f-factor I can cause buys that are much smaller than the standard Lichello buys. And I do not need to temper the buy with a SAFE!!!
4 Precisely correct: The fact that Lichello used pc2=pc1+0,5*Buy gave me the idea of starting the synthesis of the Vortex Method with pc2=pc1 + f*Buy in the endeavour to stick with the Lichello Concept of raising the pc-value!!!
5 In essence we are indeed discussing semantics. I stand corrected on some of that. The important point is however that the Lichello Buy Order had the form of (pc-y)*S in which my S means the same as your (1+S). This was, I think, evident, as I certainly did not mean that the Lichello Buy Order was 10% of the Buy Advice (pc-y). The important thing I wanted to convey was that my method is not substantially different than the Licehllo Method in its mathematical form.
My summary-point that The Vortex Method eliminates the use of the SAFE was therefore certainly not based on an incorrect equation but is specifically based on the fact that the use of a single f-factor results in a Vortex Buy Order=F*Buy that eliminates the SAFE completely because with the correct choice of the f-factor you can make the Buy and Sell as small or as large as you want it.
In closing I want to mention that the Vortex Method, of course, also uses Buy/Sell Resistances in order to calculate the next ACTION POINT: If the Buy Resistance is 10% then I use a share price drop of 10% to calculate how many shares I need to buy for the Buy Order F*(pc-y)...with F=1/(1-f)
With respect to the effect of a negative f-factor it will give surprisingly interesting results. With a large negative value you essentially reduce the buying or selling rates so drastically that you end up with a Buy & Hold Strategy, and I give that name new meaning: if you use a negative f-factor for selling and a positive one for buying you Do the Buying and Hold off on the Selling !!!! If you reverse that strategy you end up with a Hold and Sell Strategy.... buy only little(or nothing) on the dips, and Sell more aggressively on the top! This is effective for liquidating the Portfolio!
This was the Short reply.
Conrad
Hi Husk,
I got a little late into this discussion that Banjan... suggested. You are correct, certainly that most AIMers try to avoid running out of cash too soon. But there are two aspects of buying. No doubt many Aimers realise this but may not have an effective solution to the problem. My thinking is this:
1 Cash depletion occurs as too much is bough too soon
2 The Portfolio foundation(share quantity) is eroded too soon and too severely with the standard AIM.
The solution is that for stocks with good volatility you retard the buys and sells but also increase their magnitudes. This creates a more effective cash disbursement if the stock volatility maintains itself. This requires adaptation of the adjustable factors to the volatility of the stock...but many AIMers that want to squeeze more juice from their AIM generally already do this. But....
I think that all of us are a bunch of weird people.... We fall in love with an investment method that is supposed to make investing easy without spending a lot of time on it, and then we spend half a lifetime trying to invent all sorts of improvements to make the simple method complex. All this makes me think of what Einstein supposed to have said:
Do everything as simple as possible, but not simpler
I feel that some of us are trapped in a vicious circle of making the Lichello AIM function better by using all sorts of simple ideas. Still, we keep doing it...maybe because tinkering with the AIM is as much fun as investing with it.
Lichello never made a million dollar with his AIMs...he was too busy tinkering with it...How do we get rid of the Lichello-Virus?
Conrad