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I had some problems earlier this morning.
Ray
Hi Toofuzzy,
You are correct about that.
I guess what was going through my mind is the lack of buyers or sellers on the other end of the transaction. In the past I have had some GTC orders only partially filled on individual stocks because of lack of buyers or sellers. I don't know if the same thing would happen with ETFs.
Regards,
Ray
Hi Tom,
That is an interesting study of how equal weighting the sectors within an index does perform over time.
I guess that I have been thinking more about how the companies within a sector performs equally weighted versus market cap weighted since Rydex came out recently with their equal weight sector ETFs. I have held their broadly diversified equal weight S&P500 fund, RSP, for some time. It has outperformed the market cap weighted SPY until just recently.
For those with any interest here are the symbols for the equal weight sector ETFs that divide up the S&P500 index:
RCD -- Consumer Discretionary
RHS -- Consumer Staples
RYE -- Energy
RYF -- Financials
RYH -- Health Care
RGI -- Industrials
RTM -- Materials
RYT -- Technology
RYU -- Utilities
For what it is worth, I just went over to Yahoo and calculated the total number of shares traded today for the nine sectors---10,200 shares. Here is how they individually traded:
RYT -- 6,000
RYU -- 2,100
RCD -- 1,700
RYE -- 300
RYH -- 100
RHS -- none traded
RYF -- none traded
RGI -- none traded
RTM -- none traded
So, I guess the bottom line is that it probably is not a good idea (for me, at least) to take a large position in any of these equal-weight sector ETFs until they become more popular. I would have some doubts about any of my GTC orders being executed near my expected price.
Best regards,
Ray
Update on RYE.
I just checked at Fidelity Brokerage. RYE has now traded 200 shares today. The ask price is $49.35 and the bid price is shown at $49.26.
Ray
Hi Aim Hier,
What I have been looking at are the Equal-Weight SECTOR ETFs, not the broadly diversified RSP. RSP has been one of my top holdings for some time now, mainly because it is outperforming the S&P500. As you said, RSP is very liquid and trades a large number of shares and is superior to the S&P500 index in performance.
What I have been talking about is the new Rydex Equal-Weight SECTOR ETFs and how these sector index ETFs compare to the market cap weighted sector indices.
The problem I see in investing in these sector ETFs at this time is their lack of liquidity These new ETFs are trading very few, if any, shares each day.
For example, Yahoo Finance shows that the energy sector ETF (RYE) has an average daily trading volume of 3,993 shares.
It appears that as I write this message RYE still has not traded any shares today. Also, the other Rydex Equal-Weight Sector ETFs have traded few, if any, shares today.
Best regards,
Ray
Not sure.
Even Yahoo Finance shows no shares traded so far today.
In checking on RYH (Equal-Weight Health Care) it shows on Yahoo that only 100 shares have traded so far today.
RYF (Equal-Weight Financials) shows no shares traded being traded so far today.
RYT (Equal-Weight Technology) shows only 1,200 shares traded.
Evidently these new ETFs are just not popular yet with the investing public and are still fairly illiquid.
Best regards,
Ray
Thanks Aimster,
In the past I have done what you suggested previously with SPY and RSP using PerfCharts. As you indicate RSP outperforms. That is why I became interested in the brand new Rydex Equal Weight Sector ETFs. RSP is one of my holdings.
However, the big problem I see with some of these newer narrowly focused ETFs is the lack of liquidity and possibly more slippage.
For example, as I am typing this at 12:05Pm Eastern, I checked a quote for the Rydex Equal Weight Energy ETF (RYE) at Fidelity Brokerage. So, far NO SHARES have traded this morning. NONE!!! NADA!!! ZIP!!!
In checking on the more popular energy ETF from iShares (IYE) there have been 42,000 shares traded so far today. The bid is $100.42 and the ask is $100.47....a seven cent differential. No telling what the ask price for RYE might be if someone put in a bid and got the trading started.
Would the lack of liquidity and the costs associated with these equal-weight sector ETFs be enough to overcome the possible performance advantage over the market-cap sector ETFs.....especially with the possible frequent trades generated by AIM?
Just one of the problems I have been pondering recently.
Regards,
Ray
Just wondering....
I was just wondering about the advantages/disadvantages of holding the new Rydex "Equal Weight" sector funds versus the more traditional market cap weighted S&P 500 sector ETFs.
It seems to me that if someone holds the traditional sector ETFs then those ETFs are going to be heavily influenced by the performance of two or three stocks in that index. For example, in XLE it appears that Exxon-Mobil and Chevron account for almost 35% of the index. Exxon accounts for about 22%. In the Rydex S&P Equal Weight Energy ETF (RYE) it appears that Exxon-Mobil is only 3.28% of the index and that Chevron is 3.23%. I got those percentages from the ETF connect website --- http://www.etfconnect.com/
It appears to me that the traditional market-cap weighted indices tend to overweight the growth momentum type stocks and underweight the better value stocks. I would guess that by equally weighting each stock that overall performance would be enhanced over a complete market cycle, since the undervalued stocks might have a better growth opportunity over a long period of time.
I am not sure how each type would "AIM". Maybe the traditional market-cap weighted index would provide more volatility and more opportunities to trade.
Has anyone done any studies on this?
What opinions do you guys have about this subject?
Thanks,
Ray
Thanks for the information.
My thoughts were to have an approximate 30% holding zone; much like the standard 10% SAFE for both Buys and Sells, plus a 5% Minimum Transaction, which also creates a 30% holding zone.
I was intrigued by Lichello's AIM-HI because it would require less cash. However, as he created it this would create a 40% holding zone, which would definitely cut down the number of transactions. AIM-HI, with its 40% holding zone, is darn near a Buy-and-Hold strategy, except in the extreme market conditions of a rampaging bear or bull. However, by having a 0% SAFE for Sells, then one can take advantage of a good bull market, while maintaining the AIM-HI advantages of keeping the cash burn rate down in a sharp bear market.
Those were my thoughts anyway.
Ray
Neil,
Thanks for the reply.
I am fairly new to all of this, so I have been staying with a 0% SAFE on the Sell side of the equation, and with a 10% SAFE and a 10% Minimum Transaction on the Buy side. Too Fuzzy recently mentioned about increasing SAFE by 5% on consecutive purchases to avoid burning Cash too quickly. I like the thought of that, but have not had an occasion yet to put that strategy to use.
Best regards,
Ray
Hi Neil,
Congratulations on the sale.
In looking at the different prices for your sales I was wondering what percentages you are using for your SAFE and Minimum Transaction settings.
Thanks,
Ray
Hi Sam,
Under the scenario you describe then that becomes a possibility. You might be right, however I just can't foresee a fund or stock market that never declines.
Even the mild decline we had last year (around 8% or so) would have you investing more last June with Twinvest than you would have in April with most funds.
I think that most funds dropped 15% to 30% during the 2002 bear market.
But, in the scenario you describe then investing the whole amount would be best. In reality I just can't see it happening. I guess I have lived through too many bear markets in my life.
Best regards,
Ray
Hi Sam,
I am no expert on Twinvest. I will ask you though if you have a copy of Lichello's book, the latest edition. It is the fourth edition.
Beginning in Chapter 15, pages 224 through 235, he covers the Twinvest subject pretty thoroughly.
He uses a multiplier that is determined when one begins the program. Then each month (or other determined interval) one divides the multiplier by the fund's NAV to determine how much to invest in the fund that particular month.
He gives this example. Suppose you have $100 a month available to invest. Divide the $100 by 4, which gives you $25. Then multiply that by 3, which gives you 75. The number 75 then becomes your multiplier. If the beginning NAV is $10, then multiply that by 75 to get the Coding Multiplier of 750. That Coding Multiplier is the number you will use from then on whenever you get ready to make an investment.
Suppose at the end of the month the NAV is now $11. You would divide the Coding Multiplier 750 by 11. Rounded off, that is $68. That means that since the fund's NAV has gone up you would invest less this month....$68.
OTOH, suppose at the end of the month the NAV is now $9. You would divide the Coding Multiplier 750 by 9. Rounded off that is $83. In this case you would invest $83 this month.
If the NAV continued its decline to $8 the following month you would then divide the 750 Coding Multiplier and get an answer of $94 for the following month's investment.
The amount of the $100 available each month for investment that is not invested in your fund would naturally go into an interest bearing cash account for possible future investment.
So, the amount you invest each month depends upon how much the NAV of the fund has increased or decreased. As you can see from the examples above and from the book, the amount invested would change as the NAV of the fund changes. Therefore, each investment would more than likely be different from the previous investment. This is unlike Dollar Cost Averaging where the same amount goes in each month regardless of the NAV and trend of the fund.
I have never personally used the Twinvest method of investing since I am fairly new to AIM and Mr. Lichello's methods, but if I were in the accumulation mode, instead of being in the distribution mode as I now am, it would seem to be a very common sense method of making periodic investments.
I think that the book can answer your doubts about Twinvest and any confusion you could possibly be having.
I truly hope that I haven't confused you further with my response. I think the book can answer any and all questions about Twinvest
Best regards,
Ray
Tom, thanks for your comments.
This seems like a good low risk way to generate additional income for a fund that might have low volatility. Both funds have had good returns for the short time they have been in existence.
The Black Rock fund evidently invests in stocks that are from the Mergent's Dividend Achievers universe. For those who don't know, the Dividend Achievers are those companies that have increased their dividends each year for at least 10 consecutive years.
This seems to be a low risk fund. I was just wondering about the volatility of this strategy whenever the markets are in turmoil. As mentioned in other recent posts this market has had very little volatility over the past few years.
Best regards,
Ray
Options/Arbitrage closed-end funds--
I had been doing some recent screening and I have come across a unique investment critter (at least to me). It seems that there are several of these CEFs around which enhance their returns by writing covered call options. I haven't found one with a lot of history yet, so it is difficult to for me to see how they fare on a ZigZag chart. A couple that have caught my interest are ETB and BDJ. The yields on most of these CEFs are currently in excess of 8%.
Have any of you AIM'd any of these type of CEFs yet? If so, how was the volatility, say compared to a normal equity fund?
Thanks,
Ray
Tom, thanks.
My best wishes to you and the doctors who will do the surgery and treat you.
My wife will be going for her first series of pain killer injections tomorrow at the pain clinic. She did these pain killer treatment injections three years ago and they were very helpful. She did have almost three years pain free. I hope these upcoming treatments give her the same relief as the last time.
This time she aggravated her situation on Thanksgiving when she bent over to open the oven range. Her condition is such that she has some deteriorated and herniated discs, and they are pressing on the nerve that runs down her left leg. She has constant pain in that leg...it isn't a sharp pain, but it is constant....always there. The usual oral pain medications, both over the counter and prescription, do not have any effect on her pain level.
Ray
My better half is currently going through a lot of back pain and treatment so I can only imagine the pain you have been in. Our prayers and best hope for recovery are with you.
Ray
Hi AIMster,
It is interesting you should mention the Rydex equal-weight ETF, RSP. I see where Rydex has recently introduced some equal-weight sector funds. Hopefully this link will take you to that page.
http://www.rydexfunds.com/ourproducts/etf_profiles.shtml
I guess I need to check into these fundamentally constructed sector ETFs further. However, as you mentioned, the turnover within the index is something which could increase the costs and be a drag on overall performance.
Best regards,
Ray
In the For What It is Worth department:
Most of you are probably already aware of the following information, but I thought I would bring it to the attention of others who might not have read about it yet.
WisdomTree introduced some International Sector ETFs about 2-3 months ago. It seems to me that this might be a different way of AIMing the international markets and capturing some of that volatility.
Here is a link to WisdomTree.
www.wisdomtree.com
You can view these sector indices by clicking on to the Indexes tab at the top of the screen.
It appears that these indices are constructed along dividend weighted structures the same as the other WisdomTree indices instead of the usual market capitalization weighted index structures.
I am not sure how this will work with the Technology sector since most domestic technology stocks pay little or no dividends. This could possibly be a hindrance to performance when compared to a international technology sector where the index is constructed along other criteria lines. I see the largest stock in the technology sector index is Canon, followed by SAP. This could also possibly be a performance hindrance with some of the other sectors.
Anyway, I thought I would bring it to the attention of some who were not yet aware these ETFs existed.
Ray
Toofuzzy, Thanks.
That helps me understand your settings. You have a good system.
Regards,
Ray
Tom, thanks for the reply.
What you are doing makes a lot of sense in this type of market environment.....especially with ETFs and mutual funds.
Ray
Hi TF:
I could be wrong but I seem to recall that you do not invest in individual stocks....only mutual funds and ETFs. Am I correct in my recollection?
Regards,
Ray
I was wondering if anyone is using a SAFE for the 'sell' side of the algorithm? If so, what percentage SAFE are you using? And on what type of investments....stocks, ETFs, or actively managed mutual funds?
Just curious.
Thanks,
Ray
Happy Thanksgiving to all:
I wish all readers have a very Happy and Healthy Thanksgiving.
My special thanks to Tom for all the work he does on our behalf.
Ray
Thanks, Scott
That is some good information.
Ray
My name is not Clive, but thanks for the info.
Some ETFs that have recently caught my eye are the new Proshare Ultra-long and Ultra-short (200%) NAZ 100 tracking ETFs. The symbols are QLD and QID. There could be enough volatility in these ETFs to create some transactions.
Ray
Aimster, thanks.
I was thinking of becoming more conservative with some of my holdings. Investing in some of the more broadly diversified ETFs is one way of becoming more conservative.
Gives me a lot more to think about. I am not sure I want to become that conservative though.
Ray
I am curious about something and have a general type question.
Do any of you AIM very broadly diversified ETFs or funds, such as SPY and EFA?
If so, what sort of AIM SAFE settings do you use to generate your Buys and Sells? What percentage of Portfolio Control or Stock Value do you usually use for your Minimum Transactions?
I could be wrong, but it seems to me that since these are very slow moving indices, then either very small SAFE settings, or no SAFE settings at all would be necessary to generate an adequate amount of AIM activity.
Thanks,
Ray
Thanks, Neil....
That is a good lesson for all of us.
You say, "If I had checked the fundamentals and seen the losses building up, negative cash flow in the last 5 years."
The cash flow criteria is very important. In your example, it had been negative for some time. I have posted this website before for the readers, however I will post it again. The purpose of the website is to give a down and dirty discounted free cash flow 'intrinsic' value for a large number of U.S. stocks.
http://www.valuepro.net/
The website is interactive and allows one to change the different criteria as one sees fit.
For example, it defaults to an 'excess return period' of 10 years. The 'excess return period' is defined as "The number of years that a company is expected to earn a return on incremental investment in excess of its weighted average cost of capital". 10 years is a long time to project in the future. I usually change that to 3 years, which automatically decreases the intrinsic value of the stock. I do that because 3 years is about as far out into the future that I want to project the earnings of a earnings of a company.
That is only one example. Another example is that it defaults the 10 year treasury rate to 5%. The reader can change that to whatever the current 10 year treasury rate happens to be and see how that changes the discounted free cash flow intrinsic value.
The creators of the website are authors of the book "Streetsmart Guide to Valuing A Stock". The book explains how to develop the intrinsic value of a stock using discounted free cash flow as the criteria. The authors are college professors, and while they do hawk some inexpensive spreadsheet software, they also make this website free to the public.
Ray
Hi Steve,
<OT> Thanks for the YouTube posting of the Duncanville band.
I think my daughter just attended a 20 year reunion of the band members. I remember they always seemed to put on a good show.
Good luck to your son's band.
Ray
Hi Steve,
As a side note. My daughter was in the Duncanville marching band in the mid 80's. They won the state competition twice while she was a member.
Ray
Hi Tom,
If I am reading the chart correctly it appears to have about 40% to 45% cash at the present time. Is that correct?
Ray
Thanks Tom...
That was my impression as well....the mutual fund cash reserves for a complete stock portfolio drawing from the same cash account.
Naturally the more conservative and less volatile the stocks in the portfolio are then the less cash account would be needed.
I find that now that I have now been retired for 12 years and since I will soon be 65 years old it seems I have been unconsciously getting very conservative in my investment selections these past couple of years. Because of my new unintended conservative approach I do not seem to have the same number of transactions as others who post here.
That was why the AIM-HI strategy caught my eye as I was rereading Lichello's book. That is why I asked if there were any others who were using this strategy and what their results might be.
Regards,
Ray
Thanks, AIMster....
That is quite a difference. I seem to recall that the example for the AIM-HI strategy that Lichello used in his last edition did not show any transactions. It appears that only a 'raging' bull market or a 'roaring' bear market would be needed to really create some meaningful transactions with AIM-HI.
Ray
Hi Tom....
Thanks for the reply. I see you say you are against a fixed beginning cash reserve amount and I can see your reasons.
However, if I am not mistaken I understand that your weekly cash reserve recommendations are for an individual stock purchase, not for an entire portfolio of stocks. As we know, some stocks are zigging while the rest are zagging, so I would suspect that if someone was using only one cash account for all of their holdings, then a fixed beginning cash reserve would be sufficient. Or am I missing something here?
Thanks,
Ray
Is anyone using AIM-HI as a money management strategy? This is essentially a beginning 20% cash account with a 10% SAFE setting and a 10% minimum transaction setting. If anyone is using this strategy are you doing it with funds or individual stocks......or both? What has been your experience if you don't mind sharing?
The reason I ask is because I have recently been rereading Lichello's book and the thought occurred to me this morning that I rarely see AIM-HI mentioned on this forum.
Thanks,
Ray
Hello Cody,
If I am reading your post correctly it seems to me that one solution to your problem might be to use one or more of the 200% inverse ETFs. For example, SDS is 200% short or inverse the S&P500 Index and QID is 200% short or inverse the NAZ 100. In theory, at least, a decline of 20% in either index would have you sell out of your LD-AIM program goal of 40%. Using the most recent bear market as an example it is quite possible you would have no trouble reaching your program goal.
I don't know if this helps you or not.
Best regards,
Ray
One thing about AIM-HI is that the minimum transaction is at least as much as the SAFE amount. With the AIM-HI explanation in the book, both the SAFE and the minimum transaction amounts are 10% of the Stock Value. However, the last book edition was published in 2001 and probably went to the printer before 2001. Mr. Lichello had seen a great bull market that ran from August, 1982 until March, 2000. I am sure that he was influenced by that long running bull market.
The example he gave in the book on page 260 was using the Vanguard Primecap mutual fund....a 'diversified' mutual fund. Even in his example of Vanguard Primecap there were no actual purchases or sells...only a cap gains distribution. I am not quite sure why he chose that particular fund or that particular time period (January, 2000 through September, 2000) for his example.
Anyway, by using the results of the 2001-2002 bear market, I have done a little backtesting of individual stocks, sector ETFs and 'diversified' mutual funds. My results were that if we have another similar bear market then AIM-HI probably has an 'adequate' cash amount for a 'diversified' mutual fund (20% of the total account, which is the same as 25% of the stock value). A large number of 'diversified' mutual funds declined no further than 30% from their highs and AIM-HI could accomodate that sort of decline, especially with its minimum transaction amount requirement of being 10% of the stock value, the same amount as SAFE.
However, some sectors, like biotechnology or semiconductors, are very volatile and a 20% cash account would probably be inadequate, even using a 10% minimum transaction of the stock value, like AIM-HI. You could possibly burn through your cash account in a hurry.
My conclusion is that if you are going to use AIM with volatile sector funds or individual stocks you might be better served to follow Tom's IW recommendations when you begin an AIM account.
Otherwise, AIM-HI will probably be adequate for most 'diversified' mutual funds.
This is just my opinion and I am sure that others have different opinions.
Ray
Don...
Very good. I needed a good laugh this morning.
Ray
Hello Adam,
I did something earlier this year with these funds that was not quite AIM-like.
I bought four of these funds that were TWICE (200%) the inverse of their respective indices.....RYVYX, RYTPX, UICIX and UCPIX. However, I did not buy their mirror counterparts since I already had a number of long counterparts that I was "hedging". I figured at the time that I would "hedge" my long positions with these inverse funds from my Cash Account.
The reason I bought these funds to begin with was because of the lack of "volatility" in the overall market as expressed by the VIX index. I bought these funds in March. I seem to recall that the VIX index had gotten low readings down to around 10-11 at that time. I sold all four funds in early June when the VIX index's readings climbed up to almost 25. These turned out to be profitable trades for me. There was a 20%+ profit in RYVYX and over 10%+ profits in the other three indices.
Now then, based upon my very limited experience with these inverse funds, I have decided that I would never again "permanently" hedge my long stock positions with my Cash Account, nor would I do what is being suggested here.....that is, use the long index against the short index in an AIM-like manner.
The reason is that it seems to me that most of these "corrections" are short-lived in duration and you could end up with your Cash being used just when you need to be in a position to make purchases in your regular long positions. If I ever use these inverse funds again it will be with only a portion of my Cash account. Also, I will purchase only these new inverse ETFs from ProShares (Profunds) instead of the regular open-ended inverse bear market mutual funds. The ability to place stop loss orders on these new ETFs is the reason I would choose them. As I said, it seems to me that these market corrections are usually very short-lived in nature and a person needs to stay on top of the situation if they are going to buy an inverse fund. The ability to place stop loss orders on these new ETFs is the attraction for my choosing them over regular open-ended bear market inverse mutual funds.
Again, as I said, I have very limited experience using inverse bear market funds.
Ray