is retired now but still kicking like a horse!
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Hi Irp42.
The basics of what I have exlained are quite well presented in the English Short Version of my book The Vortex Method(Chaper 6 of the Dutch version full book)
http://www.vortexcw.nl/vortex/index.html ------>Vortex Book Section on the Menue.
The idea development, examples and drawings makes everything very clear.
You can order it @ € 20.00 on PayPal ir via internet bank transfer.
Clive, Ref. PC2=PC1 + Buy. . .I am so glad you addressed this issue so eloquently!
There's still a difference of $2000 between Portfolio Control and the actual value of our stockholdings, despite the fact that we've just invested $2000. And if we go ahead and invest another $2000........
You are of course right to conclude this effect is there. . . but this is in principle no different to what the Residual Buy does, which I called the Lichello Flaw many years ago on this Forum as a result of the standard AIM PC-updating with
PC2=PC1 + 0,5*Buy
The answer of AIMers is that they would ignore the Residual Buy, ignoring the problem of too aggressive buying that result anyway because just after one had bought shares AIM still has that $ 1000 difference (in your example, instead of the $2000 difference).
Ever since AIM was developed users have complainer about the high Cash Burn Rate for dropping prices, and have been tinkering with all sorts of ideas to get around that basic Lichello Flaw. . .The Residual Buy that is ignored after the Primary Buy is carried over to the next Buy anyway, because the $ 1000 Difference(PC-V) is there to start with and the next Buy is rather high.
That is why I have developed the alternative Trading Function and created Vortex AIM:
1 Sets the Trading Amount as low or as high as one wants it (investor control)
(slow conservative trading that reduces the Cash Burn to desirable levels)
2 Automatic adjustment to the PC-update so that after a trade execution so the Trade Advise = 0 after every trade.
This achieves that as the price drops one starts with a Difference =(PC-V) = 0 and the price must drop much lower to get to an executable trade as compared to standard AIM. That starts with (PC-V) is 1000
So Vortex AIM has a built-in Brake that all AIMers are eagerly seeking
For Low aggression trading the AIM PC-update could be
PC2=PC1 + 0*Buy . . . . .for a low Cash Burn Rate( Constant Equity Value Case)
or for high aggression trading it could be
PC2=PC1 + 0,9* Buy . . . .a high Cash burn Rate which would require extra cash to be found for effective trading (TurboVest Method)
if that is what the investor wants to do. In each case after the trade (PC-V)=0 . . .eliminating the Residual Trade Advice.
I am really on a holiday, but this is so much FUN, I consider it Holiday Work.
Well. . .ehhhh. . .Grabber. . .I did not made more complicated but made easy. . .I showed that what you were thinking about I was already doing. . using a variable update factor for the PC for both the Buying and the Selling. . .
I dipped more that my toe into it. . .I went in up to the knees, to make it easy
Now I wll take a holiday.
OK Clive, I agree 100% that the initial price is not not really relevant in the long run. . .it is a bit like exponential weighing in a running average. . .prices from the past are less and less accounted for on new price information, although it is not the same process.
Only the last few points you mentioned flew over my head. . . no need to explain further.
Thanks
Hi Irp42, I have responded to you question from last week on Constant Dollar Investing and Vortex AIM, Post 487.
Sorry to taking such a long time.
I thought maybe you are lurking behind the scenes on this Forum
My head is still spinning from earlier 50-50 debates and now I am not able to digest this Spin Off from the Clive's Analysis Factory, which is running on overtime. . .I bet Clive is beating his factory workers with leather whips with tiny steel nails in it. . .
In order to potentially understand what you have discovered Clive, I have to understand this first:
. . .of that mechanism is that stock exposure levels decline over time.
What does this mean?
I promise not to be naughty!
I am far to exhausted to become naughty, I am also keeping track of events in Libya so I can interfere there to set things straight, if things get out of hand there, so I won't have much time to challenge you.
Yukkie, Grabber. . .
On Buys, PC increment = Trade $ amount.
On Sells, PC decrement = Cost of Shares sold (LIFO).
What is the difference between "Trade $ Dollar Amount" and "Cost of shares Sold"?
Or how should I figure out the difference? . . .just to poke you a bit!
. . .Therefore the PC decrement would be 1650, not 2250.
I get it! . . .but your are doing something that relates to the American Taxation System(which I understand now). . .making a distinction between shares in a pool that are not rally identifiable in practice. . .like raindrop in the Ocean. We had some interesting discussion on that. I understand what you did . . .but instead of using the last acquisition price you could as well have used the average share price of all the shares in the Portfolio. . . Pool Price.
Alternatively you could have applied a multiplying factor to the "LIFO Cost" of these shares . . and you can do the same with the Selling PC update:
PCs2=PCs1 + fs* Sell $ Value
PCb2=PCb1 + fb* Buy $ Value
and then you have exactly the same type system for PC-updating as Vortex AIM uses. The main question here is:
“Why should using lower value for the PC-updates be better than a higher value?”. . .If you do not know that answer yet then any value for fs and fb would be just as interesting, and then you do some experimenting to find out what the differences are that you get
I have no idea what effect it will have on your stop loss actions. All I can say that changing the values of the PC relative to the standard AIM values will either slow down the trading (putting on the brakes) or speed it up(acceleration the Cash Burn and/or acceleration the Equity Sell Off) , depending on whether you change the PC upwards or downwards compared to a particular reference amount you would use for it.
As far as I know a Stop Loss Limit is normally completely arbitrarily chosen, but you can obvious construct any functional relationship for it related to Equity Value. . for example the higher the value rises the smaller you set the Stop Loss to capture the greatest profit on a price reversal. . .on the other and you can argue that a too early equity dump is not desirable as in case the price recovers after a small dip at the top you would have to buy in again but then the price might be still higher and could drop just after you bought in at the higher price and extra costs.
This is new territory for me to make judgements on it.
I whish I was an Oracle.
Hi Itp42,
Just generally the difference is that in Vortex there is 1) no requirement for a constant Dollar Value Trading, which has been the Spring Plank for the AIM concept(as far I know it from the AIM hisyory)and 2) In Vortex there is complete freedom to weigh the Buying & Selling "symmetrically" or to let the program be biased for selling(retirement income mode) or let it be biased for adding extra capital during the low price intervals(this would require increasing the Reserve of the portfolio during the price dips).
But it may be that this is not related to your question, just an explanation as to Vortex's possibilities and its operation. Of course, I recognise that any Investor can do the same thing at any time as I have just mentioned, but I have provided the means to do that automatically so that the investor can plan the basic functioning of the program.
As to your example:
I will try to grasp it in order to answer your question with the Vortex Model as you appear to think that it may be like Vortex investing. I ignore for the moment the Reserve Value as that is not really a relevant part of investing unless one has a definite limit on the maximum amount of cash he can invest, and then the cash is a boundary condition not a function of the algorithm.
Initial investment 100000
(Rv=Reference Value. This is the same as PC . . .(I do not really like the term Portfolio Control):
V1=100000
Rw1= 100000
Trade = (Rv - V2)*M
Rv2=Rv1 + f/(1-f)*Trade
"Trade" is Positive(Buy) or negative(Sell)
M= 1/(1-f) and the f is the trade aggression factor. One can use fs for selling and fb for skewed trading
The result of this is that when the advised trade is executed the new Rv is equal to the new Value as a general feature no matter how large or how small "M" is. This must be the clue to see that the constant value concept is not applicable here because “M” is not generally the same for buying and selling
Lets set M=1. . .T(f=0)
Trade = (Rv1-V2)
Rv2=Rv1 + 0*(Rv1-V2) = Rv1
V3=V2 + (Rv1-V2) = Rv1
!!!!
The interesting thing here is that in this case with the neutral setting of M=1 for the buying and the selling maintains a consent investment value, which is the core of this type investing. . .the idea is to maintain the base form which the portfolio can grow.
If the price has risen the excess value is stored as Reserve.
If the price has dropped the deficiency value is added from the Reserve.
In this case the equity value remains constant no matter what happens with the price.
So, in that regards to are correct: Vortex AIM with M=1 is a Constant Value AIM Program.
Now we do this extreme example:
fs=0.2-----> Ms =1/(1-0,2) = 1.25
fb=0.8-----> Mb =1/(1-0,8) = 5.00
Rv-Updating factor for selling = 0,2*1,25 = 0,25
Rv-Updating factor for buying = 0,8*5= 4.00
Let the price change 10% downwards
Trade =5*(100000-90000)= 50000. . . .From the Reserve
Rv2=100000 + 0,8*50000 = 140000
V3=V2+ Trade = 90000+50000 =140000. . .New Equity value= Rv Value
Trade Advice after Trading is done = (Rv2-V3)= 0 !
Now you can see that the equity has risen to 140000 and now it is not a Constant Value program.
For selling at a 10% price rise the trading would be much less aggressive. The Sell would be 10000*1,25 = 12500 instead of the 50000 for the buying. The new Rv would again be equal to the new value: Rv2 = V3 =(100000-12500) = 87500 and the Trade Advice would be 0 again.
If the recommended Trade is not executed then (Rv2-V3) is not 0 and the Residual would be "carried over" into the next Trade Advice Calculation. . .increasing the trade.
The lower or higher price of the equity is automatically processed "behind the scene" in the calculation of the number of shares to buy or to sell. . .it does not enter in the Algorithm unless you represent the equity Value as a function of Share Price.
I hope this answers your question.
PS:
I might add that the principle for the updating the Rv for the buying is very similar as in Standard AIM
PC2=PC1 + a*Buy
For Standard AIM a=0,5 and for selling the update is not done.
For Vortex AIm it is
Rv2=Rv1 + f*Trade
With f being the variable aggression factor AND the updating is done for the selling as well.
For
Hi Grabber,
On this Board we all hail from Babylon and constantly misinterpret each other, or at least a lot of the times.
My reference to how other systems calculate trade amounts and what sort of Reference Number they use(In Vortex AIM it is called "Reference". . .I really do not like the "Portfolio Control" name as it does not "control" the Portfolio. . .the investor does by his executions. . .and that are often "interferences". .as it should. . . with the investment algorithm) is simply my question to ponder what might be common to all systems. . .THAT would be informative.
Now back to what you mean. . .you might have given an example. . . that would have saved me 1000 words. . and you too.
. . .increase/reduce the PC by the cost of the shares bought/sold (on a LIFO basis)
I do not understand you if I misinterpreted you: The cost of the shares bought/sold is the Trade Amount. . .I can not interpret this any other way.
AIM Advice = Trade Amount
Trade= No Shares * Share Price.
So what you said is that you would want to increase or reduce the PC by the Trade Amount. . .as I stated it!
May be you meant
PC2=PC1 (+/-) Share Price
For example PC1= $ 10000. . . .to save 1000 more words J
but that makes no sense at all. If you trade for $ 2000 and the share prive = $0,75 or even $ 10 then
PC2= 10000 (+/-) 0,75. . . . .or 10000 (+/-) 10
and the PC would hardly change at all, so that you will get a new Trade Advice immediately as a Residual Trade at the same share price.
Example
PC= 10000
V= 12000-----> Advice = /10000-12000/ -1200 = 800
V2=12000-800 = 11200
PC2=10000-1 = 9999 (for a Share Price = $1)
Next Trade = /9999-11200/ - 1120 = 91. . . .to Sell as V2 > PC2
Well. . that is not so bad. . .it is a small Residual Sell which you would ignore. This could work but Standard AIM works also. . maybe even better.
If you had done the standard thing:
PC2 = 10000 + 400 = 10400
V2=11200 as before
Trade Advive = /10400-11200/-1120 = -320
which means to Buy shares for $ 320 in Standard AIM. . .So Really AIM would tell you to buy back $ 320 worth of shares from the $ 800 you just sold. But you would ignore that in Standard AIM(Which is also Lichello FLAW) as it makes no sense. . .BUT it does mean that the Standard AIM put on a stronger Brake to the Trading. . the prive has to rise substantially to get a Sell Advice.
Which is what I said. . .adjusting the PC with the Share Price makes no sense.
So I still do not know what you had in mind that would make sense. . OR if you did have this in mind I will say it again: "It makes no sense". It would accelerate trading to a very aggressive trading mode.
At this point I am not even trying out what it will do on Buying side. . . .with a constant PC the Trade Amount = (PC-V)-0,1V would be reduced relative to Standard AIM so it would reduce the Cash Burning . . .so maybe for Buying it maybe be a good thing to spend the cash a bit more efficiently for deep divers. . .but if Cash Burn Reduction is the objective you might as well Reduce the PC more aggressively like Vortex Aim does:
PC2=V2
so that at any point on a deep diver after a trade the Trade Advice = 0, while for your idea the Trade Advice gets bigger and bigger as the price drops more with each Buy. . .this is a well known problem with standard AIM. . .due to the rising PC value and the Residual Buy that makes the buying very aggressive.
So, as an idea for you is to shift to the Vortex AIM Method. This may give you exactly what you might want. . . .you can:
1 Put an automatic Brake of your liking on the Selling for preserving Equity at rising prices(conservative investing. . .any fraction of B&H in it you like);
2 You can put an automatic Brake on the Buying for preserving the Reserve at dropping prices(conservative investing. . .any fraction of B&H in it you like);;
3 Aggressive selling + Aggressive Buying . . .Trading Range Investing
4 Aggressive Selling + a Brake on the Buying. . .Retirement Income Mode
5 Brake on the Selling + Aggressive Buying. . .TurboVest for strong Portfolio Growth Mode.
Hi Grabber, let's chew some fat:
Very interesting that something I said should raise a new idea, or trigger that idea you had in already to be raised here now. . .I have a feeing from the responses in the past to this day that there are a lot of AIMers that feel that the standard AIM is not an optimum investment machine and that is why there are these “derivatives”. Before getting to your idea on the PC-alternative I want to address something I have frequently thought about an have mentioned this here, but in that I am not alone:
As long as one is not considering investing 100% of available capital at the start of a portfolio then no matter what algorithm one uses for trade calculations this method is generically AIM-like: It is IM. . .Investment Management. . .although not necessarily automatic management.
A lot of investment managers increase their "liquid asset" positions when prices are rising(either to secure profits or to make money available for new opportunities in the market). This is essentially no different than what happens in standard AIMing. . .even as an AIMer it can be profitable to spend some of the cash to start a new investment if you run into a good opportunity even though the price of the running portfolio has not changed. . . this would simply amount to de shift of the CER that would apply for a multi-stock Portfolio. The same thing as Rebalancing a single stock Portfolio. This just as a lead to what I mean in response to your idea:
A question arises: "What would be a generalised investment algorithm that uses various inputs from the market for calculating trade amounts? I know, of course, that this is an old question and that as many systems have emerge as there are people who think they can make such a system work better that anything else. . .so I am clearly not suggesting that we try to do this here. We have already developed many AIM-variants within the AIM-community and no one knows if it is possible to identify anyone as the best because these alternatives operate on different rules and have different boundary conditions.
The interesting question is:
When we look at the various popular systems that are in vogue(and I include systems that are not called "AIM" but perhaps should be called PIM or EIM or MIM. . . P=Personal and E=Expert and M=Manual. . .what ever one has) what would be the most identifiable features of all these programs that are more or less similar.
For example the Trade Advice Generator:
For standard AIM: Trade =(PC-a*V). . . .a = variable(or ab and as if separate SAFES are used for buying and selling)
PC2=PC1+0,5Buy
Plus some extra rules for when to update the PC and when not and for holding zone percentages, minimum trades and CER.
For Vortex AIM: Trade = (PC-V)*M M= 1/(b-1) or 1/(s-1). . . variables for buying and selling.
PC2=PC1+ b/(b-1)*Buy. . . .or PC1-s/(s-1)*Sell
Plus some extra rules for holding zone percentages, minimum trades and CER.
How do other investment system calculate the trade amount if they are ready to trade? Perhaps you might know by of course there are various ways of creating a Trade Algorithm. To what extend are these trading function different from the above?
Are some of them similar to YOUR idea of creating a variable reference system... the PC? Maybe you could find out to answer your own question
If I read you correctly you suggest this:
PC2=PC1 + Trade. . . .Trade being a positive for Buy and negative for Sell
Buy Amount= Buy/Price. . . . price is low
Sell Amount=Sell/Price . . . price is high
Remark: This looks very much like my Vortex AIM, except that I use at first fixed Tade Multipliers based on how aggressive I want to trade. This allows me to trade aggressively or very conservatively. . it is my choice.
Your idea will result in the following:
1 Increase sharply the amount of the buy and the sell. . .
2 As the equity is sold off The PC-value drops rapidly and the equity Value drops rapidly as you sell aggressively at first, so the value
Trade =(PC-aV)
becomes rather small and the trades rapidly deplete the stock at first as the price rises, but then the trade sizes taper off and creates a stagnant portfolio with mostly cash in it. This is an accelerated form of standard AIM, which is considered undesirable and Vealies have been created for that.
As the prices drop the PC drops rapidly as the Buying is rather aggressive . . .more aggressive than you would want. . .It results in a high Cash Burn Rate and depletes the cash maybe too early.
To compensate for that I use in principle the idea that I if see things going the "wrong way". . .too rapid a cash burn. . .I then change the aggressively of the trading by adjusting the trading variables so that the trades become smaller. So in essence I use this in practice:
Trade = (PC - V)*M with a variable "M”: . . .as I see fit for a particular start for the trading. Then, if I want to reduce the trade sizes by "interfering" with the “automatic” part of my AIM, the PC updates are updated with smaller trade amounts and so the total aggressively of the trading is reduced that way I want it. . .if I know what that is. . .if I don’t I can still reduce the trading aggressively to play safe:
Buying-in then slows down, conserving cash
Selling-off then slows down, conserving equity
In order to do that with Standard AIM you would need to do this:
Trade =(PC-aV)
PC2=PC1 + b*Buy
and consider "b" as variable that you change as you see fit in midstream as the price changes (interfering with you AIM based on good judgement).
You could start off with b=1 at the midpoint of the Trading Range and reduce the value at the price moves away from it. . .how you do this is less important that the fact that you want to slow don the buying towards a DIP(holding on to the cash) and to slow down the selling towards a Peak(holding on to the equity).
This scheme would very much be similar to use a Ladder System as Clive(Is775) has suggested and as I have discussed before, but the reductions of trades towards the limits of the Trading Range would mean the very opposite to the Progressive Ladders as I proposed. I proposed that to invest more effectively by concentrating the trading close to the Trading Range Limits.
In any case the specific preference of what you want will dictate how the trading system will look like. . .you are the creator.
So the idea of creating a Generalised Optimised Trading Algorithm will not come to pass as long as investors implant they Personal Whims into an algorithm. .and many AIMers use the personal whims Lichello put into his AIM
In the end a System is going to function exactly as the Creator Desired it. . .and the critics will find all sort of things wrong with it as they have different desires and whims for their Investment Machines.
This al of this is of course quite apart from the question if using a 50-50 CER for a new AIM is a smart thing to do or not, and I have decided on this issue as follows
1. If one is ignorant, it would be a smart thing to start all his AIMs with a CER= 50/50
2. If one is very smart it would be a stupid thing to start all his AIMs with a CER = 50/50
That Gummy Stuff is interesting fun to play with but as yet I do not see the relevance of prices that are obtained from a random number generator that theoretically already balances out 50-50 in the long run. That with aim one can make money with the random number game is clear because the buying occurs at low prices and the skewing that results from that makes the profit. . .the main idea about AIM.
When you start a real portfolio one can see at once what the current price of the stock is in relation to the trading range max. and min. So this history from the past is already the most elementary clue that can be used to set the ER to one’s advantage away from the 50-50 midpoint. That alone will give enough information that statistically will favour one CER above the other, for starting an AIM.
With The Random Number there is no relation to real investing data and the "universe" around it. This is the same thing as if an isolated investor is cut of from the market information and has no idea what the process are. All he has is a price of a stock about he knows absolutely nothing and he is asked to start an AIM Portfolio. In that case he would not even have any information if his 10% SAFE has any meaning and the 50 % PC increase is then also not a Holy Number. He could just as well use a SAFE of 25 % and a PC-Update of 40%. . .for all I know from reading about AIM over the years the 50% PC update is rather arbitrary and is not proven to be the best value.. .and of course the interest rate on the Cash is relevant as well and the isolated investor would not be able to take that in consideration. High interest rate would automatically favour a higher Starting CER on top of what would have been decided on by other factors. . one can convince himself on that by setting the interest rate in the AIM Model at 100 % . . .one is then well advised not to buy any shares at al by setting the Starting CER= 100/0. . . not a share will ever be bought and the capital increase in value by more that 100% each years due to some compounding!
I am spending too much time on this as it is so I will start winding up this discussion. And leave the issue as far as I am concerned on the side of the conclusion that skilful selection of the Starting CERs for AIMing will be better than blindly setting at 50-5 for all new AIMs
Clive:
There are many analysts each studying individual shares working 70 hours a week doing so looking for a 0.1% edge (50.1 : 49.9)
Are you suggesting that they are AIMers that do this on the starting CERs of AIM Start-up? I doubt very much that there are any AIMers doing that. We must be talking about different animals.
With AIMers typically trading from time periods from days to weeks and months I do not see what computer trading in the nanosecond range has anything to do with the issue. Name me and AIMer other than you and I that knows what a nanosecond is!
What you buy someone else sells, what you sell someone else buys. Generally when it seems like you might be buying something cheaply it may be that the seller is happy to take a small loss on in order to insure against a potential lager loss and you're in effect taking on that large loss/small gain risk/reward.[/]
That's the name of the game for which most of us like follow Tom Veale's point of view:
"We buy from the scared and sell to the greedy"
How can you pin the 50/50 as optimum starting SER Claim for AIM Start-ups on this? AIMers represent a very small percentage of investor so they are not representative of the word-wide average investor anyway, but in saying this I have no idea if this has any relevance to the question as to what the optimum starting CER for a new AIM Portfolio should be. I would even dare to bet that even today AIMers do not start their new Portfolios with a 50/50 SER even though many of them they half read your statements about 50.50 being the best. . .but I would not dare to bet very much. . .the little spare money I have I want to send otherwise. . .maybe even foolishly, like a motorcycle journey around parts of the world.
Yes I do think yields +/- in a coin flip like manner. But rather than being like a simple single coin-flip emulation, with stocks its more like having two coins. One that is flipped at regular short intervals and adjusts prices up or down by small amounts in quick succession, and the other coin that flips at random intervals, sometimes with long periods between each such flip - sometimes in quick succession, and that adjust prices up or down by much larger amounts.
I do not see the parallel mechanism you are proposing that drive the outcomes.
As long as you keep flipping coins on whatever frequency the following would apply, assuming that a coin flip of 1 means the price is has risen and a 0 means the price has dropped:
1 Depending on the type of coin you might use, if you use a coin with a flat edge between Head and Cross you can expect some flips not to result in an answer. . .the coin ends up on its edge. . .an in determinant result . . real stocks always have price)or profit) as long as the company behind it has not been declared bankrupt. . even a price(profit) of 0 is a price(profit).
In AIMing we had 3 fundamental possibilities:
price rises
price stays the same
price drops
Coins usually have two. . . and that is so if you use a theoretical coin that has no edge. . .like a "coin flip" generated in a computer program. I assume you are also referring to theoretical coin flips.
2 How do you model a price that stays constant with a coin flip?
3 When a company goes bankrupt some people end up with a loss and some with a gain but after that the price(profit) remains constant . . . noting changes. . .this would be like coin flipping and every result becoming indeterminate. . . nothing changes. In coin flipping you can not present sudden events like bankruptcies. . .you have no idea when they are going to happen.
Therefore you argument that the REAL investment yields in a world wide market can be modelled by flipping coins does not sound convincing and it certainly does not seem to related to selecting the best value for the starting CERs for AIM Portfolio's in real cases in which market information is available for making decisions on that question.
I am not yet a believer in the 50-50 CER Religion.
Well said NotFuzzy
I would do it mostly like you do it too. What apparently has gone supernova in this discussion is the difference between what people normally and feel comfortable with and a scientific(or legal) aspect of what they might best do in a specific instance.
Most people know that they ought not drive faster than the stated speed limit on highways and roads, or they know they ought o pay income tax. . .on the other hand there is the reality of what people do. . .and what they believe they can get away with or take the consequences of not doing what they ought to do.
So theoretical case of what ought to be done becomes irrelevant if one is to respond in some way to what is HAPPENING in the Field.
What I am essentially doing is to try to "capture" the result of human behaviour from the stock prices because from part of that the prices develop. That is something different than stating before an experiment what the outcome will be.
It is quite legitimate to propose a mechanism by which the experiment might be driven and then test it for verification of the model mechanism, and even if there is no clue as to its mechanism we can still verify that the outcome of a new experiment will be between a certain limit based on a previous experiments.
My question has still not be answered: considering the fickle nature of people and the fickle nature of nature. . .mmm. . . I like that one. . . The nature of fickle nature is Fickle. . . finally I got something no one can disagree with
Its obviously true that some investors have a much greater knowledge as to how the market ticks and considering that it will affect the outcome of the question as to the most efficient way any one person should start an new AIM. I have already demonstrated that at the onset one can use his knowledge to pick a starting CER that is statistically better than a 50/50 starting CER. The first Buy or Sell in accordance with where the price IS in relation to its average can make the difference for the next 10 years result. That difference comes from the skill in being able to make better choices and that skill will translate in better yields. So the question is not what an complete ignorant AIMer should use but the question is what HAPPENS in the market in which a lot of experts are working and possibly some of these are AIMers and on the other hand many investment schemes work very similar as AIMing does and that counts too in the issue: What should be the optimum Starting CER be for any one person when he starts a single new AIM account? I do not care what anyone around him would advice this person to do. It is not important what others would advise as they have no clue as to what this person knows about the market and the company he is going to invest in. So in reality it comes down to the sill of the investor in choosing the starting CER for his investment in the light of everything he knows.
If one considered that then what happens in the future will just like as it happened in the past the collective choices of all investors will in part be determined by skill and in part by irregular events. In this light I would from basics expect that this process will not have a pure mathematical basis will in reality be skewed.. . deformed and THAT is the interesting question in this search: In which way would nature manifests itself to deviate what people think is happening. . .my gut feeling is that if exhaustive testing would be carried out on Starting CERs for AIM that are actually being used for AIMing that it will be different that a 50-50 Ratio.
ZZZZzzz. . .zzz. . .zz. . .z
Oops. . ehh. . .maybe tomo. . z
High Clive,
I read two lines on the link and it flashed through my head: "This looks like Gymmy Stuff. . .I read a lot of his articles in the past and loves the way he dealt with all sorts of issues...great teacher he is. . . his style is a bit like mine but If I am alowed to shine his shoes I will die happy. . Ohh well, I will anyway without that
I am too sleepy now to go on. . .ZZzzzz. . .I will read it later.
Thanks anyway to keep trying to make me see the light you are seeing. This issue begins to look like the books of Anton Zellinger on quantum mechanics and teleportation. . .I only understand half of it.
Cio. zz..
AIMster, on a 50/50 Start CER:
Rather it's a ratio that's reasonable for most people to start with.
There has never been anything to pick a bone about that suggestion. . .it is always been acceptable to do that mostly because of lack of information for beginners that start out on AIM. . a lot of them know so little about it they would never get going if they had to figure it if had to be 60/40 or 40/60 and they could be scared that 50/50 would be wrong, so the advice to start with 50/50 and start learning the "game" is fine. . .essential I will say. . . that is the message in my book. . it is the same with sex...if we had to wait till we were experts then the human raise would not exist. . and trial and error sex is no doubt fun and functional for reproduction. . .but is does not mean that trial and error sex is the best sex there is and in regards to. . . . .ohh, what the hell, what do I know about sex to advise anyone?. . .Just do it. . .and I do not even have to say that. . . it happens anyway. . .fortunately.
The same applies to starting AIM and use 10% Safe and for the last 30 years no one has yet proves that 10% is best. . who can prove that 8,3 % is not best. . .or 13,76 %? Still the questions and the discussion keep rolling along in regards to using values that would be optimum or best for specific cases.
Now I am going to take a nap or take a rest. . .I have to put on the brakes otherwise I end up with a Mind Burn.
About how many Angels on the pin of a head. . .ehhh. . I mean on the head of a pin. . .it is more interesting to ask how many there could fit on the point a of pin!
As long as Angels and the point of a pin are not defined one keeps bashing it about in an Babylonian Mess. It could be that we are roaming in a labyrinth that keeps changing it form and the place of the position we seek to find keeps shifting
Ref:
John Q. Public" investor is that 50/50 might be a reasonable starting point.
This is NOT what I read in what Clive is writing. . . This advice is always been a "reasonable" guideline for cases in which a bimbo from a forest in Africa one day takes his monkey to invest for him. . .the monkey being no smarter than his master.
It is like asking a woman
"What is bigger, an elephant or the Moon?"
Except for a few smart ones a woman would answer: "The Elephant of course. . . even a child can see that. .it’s plain as day".
I am not addressing what monkeys will do. I am addressing the question as to what stock prices do any given period. An analysis of historical data reveals that. . .prices move because of market dynamics. .what people do and think and what happens in the world, and if there is turmoil or not and when people get assassinated, and what not.
These things made the historical price pattern develop in a specific way.
The prices of tomorrow and next week and next years will develop in a similar way. One thing is for sure: over 5 years there is again new data that will be called “historical data” and THAT can be analysed also and new optimised starting CERs can be found.
The central question is not what ignorant people might reasonably use for starting CER for a new AIM Portfolio. . .The question is IF all stock prices from the past, are used for optimising the starting CER for a particular time period in the past, then that would mean that if that CER would have been used it would have given Optimum Yield...and if you do that for all stocks you will get a 100 or a 1000 or a 1000000 different SERs as optimised values fo0r as many AIMs that would have given maximised yields. . .that is beyond question. The question is now that if you average these million CERS that have come out of an analysis of factual data related to WHAT HAPPENED:
Will that Averaged CER be a 50/50 CER ?
That question can not be answered unless there is other experimental data that confirms the speculation that the answer will be 50/50. As long as that experimental data is not available one can not assert that the optimum Starting CER for any AIM Start-Up is 50-50.
In the same that it is true that one can not predict from statistical data what a particular stock price will do one can not predict that the Optimum CER for an AIM Start up will be 50-50 unless one has information available that developing reality(process) are set by a deterministic mechanism AND that the details of that mechanism are fully known.
From this I state that in this issue one can not logically use a “presumed” mechanism for price development to predict that stock price will move so that for new AIM start-up a 50/50 Starting CER is an optimum stating value.
If that is so then also historical process used for optimising starting CERs should demonstrably show that the average of the optimised CERs is also a 50-50. . and with Optimised values I do not mean Reasonable values.
As to your last point im regards to if you mist something I would say NO.
And in regards to the outcome of the number crunchings you refer to you are sitting next to me on my bandwagon! Its outcome is not predictable. . .if it were then number crunching would not be necessary.
As far as I already have stated my self, the fact shpw that some optmised CERs will be in the range of 80/20 and some might be in the range of 15/85 with a lot of them in between, but this not mean that the average op optimised CERs is 50/50. . .it could well be be that in the limit of almost endless experimentation that the Average optmised CER is 49.67/50.33
Now, THAT would be interesting practical information!
I am the one that is Fuzzy now! None of the replies I am getting appear to address the issue I try to get cleared op so I understand what other think about it.
What you did or want to do and when, or what you think is good enough for you or for Osama Bin Laden, is irrelevant. What is relevant is what happens with of ALL the stock prices in the world over a period of time. . .That what happens can be analysed, but of course, no one is analysing exhaustively all the stock prices in the world and no one will calculate the optimum starting CERs for an AIM investment in each and every stock that is available.
And so, if one is investing in a few companies then the average of what happens with all the stocks in the world over time is not relevant, because only the dynamics of the stock you invest in are relevant, and if you spent only 10 minutes analysing some data of the details of the company about its character and what it does and about the investment climate, then you are better informed than one that has not spend that time on it, Monkey Investment.
So, how can any one keep saying that a Starting CER 50-50 is the best for all cases while that is obviously not true, for in all cases some people know more than others?
And some investors are obviously better investors than others, and that exposes the ignorant investors to far greater risk. . .simply because an uninformed investor with a blindfold on could well invest in a company today about which is already generally known in the investment community that it is about to go bankrupt in the next 20 minutes or so, and he will miss investing in that new company with great potential that has just appeared on the markets.
If investing is a 50/50 coin-toss affair with equal chances to win and to lose for all investors then all the books that are written on it might as well be burned in a energy generation furnace so they will provide some benefit. The Book of Lichello then belongs there as well, and my book The Vortex Method is the one that should be burned along with the others.
Clive:
[From a simple mathematical basis, given an overall average of equal chance of a gain or loss,
[numbers]
the best choice is 50-50 Its a bell curve with 50-50 at the peak.[/í]
Please forgive me for being a bit dense. . . You start out with an arbitrary definition of a win/lose case. . like flipping a coin. . . and then conclude that 50/50 lies at the middle of the resulting bell curve. Is that not a bit obvious?
It appears to me a bit like asking. . .
"How high is a building, given it is 50 m high, likely to be?"
Now I do some calculation on my Slide Rule and I find . . .surprise. . .that the answer is 50 m!
That IS what you are doing. . . .right?
Investment +/- yields do not occur like coin-toss outcomes.. . it would baffle me if they did.
Clive,
Don't confuse asset allocation weightings with individual AIM settings. The choice of asset allocation and weightings to those assets generally accounts for most of overall gains/losses.
I was not referring to asset allocation but to a single investment for which a amount of cash was reserved at the start to have a Reserve for buying more stock as prices declined. The CER would be different for beginners than for the expert, but that difference would not mean that the average best CER would not be 50/50. . .if one considers all the amateurs that generally lose money and the experts that would generally make money, on the average then in the end the best CER to start with could still be 50/50, but allowing that possibility by itself proves nothing. The question is if the 50/50 starting CER WILL be the Best Choice.
I can read what you have said many times on the 50/50 starting CER, but I can not see how you prove that a 50/50 split for starting an AIM must be the best setting.
My example is and optimised run for SPY over 10 years an the optimised CER=72/28 for starting: the ROTAI Yield = 5.8 % Annually and the Profit = $ 8195
Then I adjust the starting CER = 50/50 . . .all other factors remain the same. . . and the ROTAI Yield drops to 1,7% Annually and the Profit = $ 4407.
For that case the difference is large and obviously the CER for the Start @ 72/28 is much better than the CER of 50/50.
Now, I realise that for another stock the optimised starting CER might have been 15/85 but that would mean nothing for proving a point. My point is this:
If you are right and the Best Starting CER is 50/50 on the average for any investment(blind choosing of a stock using a Monkey pulling numbers out of a Hat) then if one does enough testing (with say a 1000 experiments) on historical data then the average of all the optimised SERs should be close 50/50. . . that must be your conclusion if you are right. . .the argument here is that at the starting time all the stocks were driven by market dynamics, just like all the stock we buy today and in the future will have prices driven by market dynamics. There is no escape from that.
I can not as yet accept that the average of 1000 or more optimisations on historical stock prices will give an average Optimum Starting CER of 50/50 without your saying that it will be so. If you sat that will be the experimental result of the optimisations then I will understand what you mean.
In other words, if you say the 50/50 starting CER is the optimum CER value for any investment to start with then it must be concluded that all Portfolio Value optimisations in real investment runs must give an average optimised CER of 50/50 in the limit(doing the optimisations for all the stocks in the world man infinite times).
I would like to see you confirm this or deny it.
Obviously I realise that one OPTIMIZATION RUN for all stocks in the world would not give exactly, an average CER= 50/50 but if you are right and we do the optimisation experiment 1000 times the average of the optimised CERS must be 50.50. . if you are right, and if the result is not 50/50 on the average that would mean that a starting CER of 50/50 is not generally an optimum value.
Indeed AIMster. . .to put the nuts and and bolt together to make a machine like that work is the difficult part!
Now, that's not Fuzzy at all!
That the aim of AIM!
Old No.7
Ref. 50% cash Burn Limit
First there is no Rule that only once per month should be updated. AIMers use variety of update schemes. I update every day sometimes and sometimes I don’t stick to that, and do not update for a week. My rule is I update when I think about updating, but that is usually less than 1 month.
That 50% Cash Burn is an Old Rule, already discussed on various occasions in the past. I have a Vortex AIM variant that does partly what you suggest. Apart from the version I have that does not limit negative cash (The TurboVest Version)I have the Vortex AIM Cash Limiter (VACL)
1 If the recommended trade is smaller than the available cash the trade is executed if it is larger than the Minimum Trade;
2 If the recommended trade is larger than the available cash then the trade is executed as a fraction of the Reserve Value(Fractional Trade),
3 If the Fractional Trade is less than the Minimum Trade Value then nothing is dome till the price hits a good trading point near the bottom of the Dip and then all the Reserve is invested:
Trade= X*Reserve
with X= variable factor between 0 and 1 that I set by sticking my thumb in the air to feel the Trade Wind. . .when set at 0,5 VACL recommends executing a trade at 50% of the Reserve.
This works fine. When there is lots of cash the recommended trades are executed, and when the stock price keeps declining the Cash Burn Rate is reduced. On top of that I monitor the situation and when I think it is opportune to do so I will not execute the trade and let the stock dive deeper for trading at a lower price(like in (3) above, or I Bail Out if I the stock is no longer worth owning.
I have tested this and when the stock dives deep it gives better yield upon recovery than if X=1.0 . . .On the other hand when the stock does not have a very wide trading range the factor of 1.0 is optimum. . .in practise this means that the last stepwise investment is on the average relatively close to the bottom price. And no cash is left when recovery sets in.
Clive wrote something I find interesting. 50% of investors must think a stock will go up and 50% down. Other wise the price would move.
I have not made that conclusion from what Clive has said at all. IF that is what Clive has said or meant(which I did not read in his remarks) then obviously the thought behind it is wrong: prices move all the time one way or another and often in unpredictable ways. . .and to such an extend that most investors did not expect it. . .so what people think collectively and on the average any one day for making the prices move is not known. At best one can speculate afterwards why investors "let the prices drop" one any day or caused them to rise, if the prices did rise: the answers will mainly remain hidden and are later. To some extend, extracted from "what happened" by pundits on the basis of emerging information about the market sentiment.
The fact that prices are rising is not something you can pin on people with percentages. . .the action of one man can make the entire market go into a dive or spiral upwards, so in that case 99.999999 % of all investors had nothing to do with it. . .they woke up one moment and saw the silver price change rapidly and did not know what hit them until later!.
The problem is you can not optimise for the future ..... only the past ...... so you might as well use 50 -50 .
Of course one can do that. . .or may be two, or three people can do it. . .actually a lot more. . .the fact that you and I can not do that it is the reason we are here writing on forums about what we think sometimes and how wrong we can be about how the prices move. If we knew how to be terrific investors we would be out there in the marketplace pulling strings and pushing buttons and pulling millions of dollars from the pockets of those who know next to nothing about investing[that is what is happening but you and I are not so good at it J].. . just kidding here. Optimising the future THAT is not the issue at all that lies at the centre of the questions that I try to answer. The future will unfold on the basis of collective behaviour, that much is certain. No one it trying to optimises the future and those that think they can are calling a spade a shovel or a hoe, except a spade. . . you are trying to make things too Fuzzy for all of us J.
When I write about doing an “optimisation run” I do NOT write about optimising the past nor optimising the future but I am simply optimising a set of parameters in a mathematical algorithm for a particular data set. . .it is a method that is used in many different field of human endeavour. . .almost anything people do involves optimisation. . even housewives do it to run a household and kids do it to get the maximum amount of pocket money from their parents. . some people don’t optimise anything and make a mess of their lives. I do it by working as little as possible and still get money for doing nothing. . .The laws of business are simple optimisations. . . maximise profits and spends as little as possible resources, and if necessary lay off 10 000 people. . when the time is ripe all these people and maybe more will be glad to go to work again. . . sometimes even for lower wages.
So, now it is clear: optimising a system like a car engine or an AIM algorithm is nothing more that fine tuning the operation parameters for a given future operating environment. If you have fine-tuned a gas engine and tomorrow you feed it with diesel fuel it will not run properly, it may even die out immediately or not even strat. With an investment system it is no different..
The point in my previous post was that if you optimise your Investment Engine on a 10-year run then the engine is fine-tuned for that Data Set only. Now, you can jump high or jump not at all and scream bloody murder that the optimisation is useless for the future, but it is still an optimised system for the data set that was used to optimise it, and if stock prices are repeating themselves then the optimised machine will give optimised performance, irrespective of the screaming you did. Now, on top of that, the prices in the future could possibly repeat themselves. . . all sorts of strategies in life are based on the possibility that something is going to happen in a similar way that it happened in the past. . .for example if today I plan to do something tomorrow that requires the sun to shine at Noon, I already have a very good hunch the sun will rise tomorrow as usual, and according to the weather bureau there is a 99% chance that at Noon tomorrow it will be sunny, then I will plan to do at Noon tomorrow what I had in mind and I can be quite sure that it will be sunny then.
In the stock market it no different. . there is a possibility that the stock price for a fund in the next 10 years moves exactly as before, or moves approximately in the same pattern. If it does you hit the jackpot. If it does not then the performance might be better or worse than the optimum.
It may well be so that in the light of history a 10-year optimisation procedure is pointless from a practical point of view and that a 3-year run might be an optimum time span. Whether or not 50/50 for the CER is better than an optimised CER (based on previous data) lies at the core of the Issue here. Your argument that instead of optimising the investment machine for the stock you are investing in “you might as well use 50/50” is nonsense. . .it sounds like something desperate for you, based on the way you said it. Using a 50/50 CER is only wise if you know that for that stock any other setting is worse. If the stock has been trading within a certain trading range for 5 years and the optimum for that is a CER of 75/25 you would be a fool to start at 25/75 or even at 50/50. In a real case you might even profit from deviating from the 75/25/ optimum if you consider the day-price for stepping-in in relation to the trading range price limits. That way you can improve even on the average optimised setting. Any information you can use to decide what is the best strategy for your investment will help you achieving a better yield as long as the information is interpreted in the correct way. . . all the discussion on that AIM Forum are focussed on that: the skill of the investor.
So I repeat: optimising a machine is useful . . .for such efforts will get you closer to the optimum tuning set than doing nothing. . .in that Clive at least agrees: if your tuning of the system and selecting the optimised parameters so that the prices move as you predict then you will ADD Value to you portfolio. If you are wrong then you will lose out.
So the entire question amounts to how well one can set the parameters of the investment machine so it will be optimum for the prices that are to develop. . .the skill of the investor is the key in all this . . .it is all about fine tuning the Investor as well as his Machine.
The question is not what a complete Fool should do when he picks an arbitrary fund about which he knows nothing. A complete Fool would not listen to any advice anyway.
I am not sure where this is going. . .maybe I am a complete Fool.
Clive,
I have been searching for some information on your 50/50 suggestions but found none that give 50-50 as an optimum starting split for investing in arbitrary stocks. In one example one "advisor" came up with 3 different ratios for 3 different investors buying the same equity. For a conservative beginner he suggested 60% or even more in cash and he himself said "I like more risky approach, so I go for 70 stock as in the long run it earns me more on the average. . .as cash does not earn enough". . . this reflects more or less my point of view, apart from considering the particular price level of the stock in the trading range at the time of stepping in..
Since we have discussed the issue without having started out from well defined statement as to what the goal is I think we are each beating a different horse without knowing if the horses are supposed to run or to dance. You talk about a “50/50 adjusted loss/reward”. . . which might mean that the in the end the chance of losing a buck is the same as the change to win one. . it is easy to interpret it that way, so that in the end on the average nothing is gained because the loses balance the gains. . .this sounds rather silly to me as an investment objective and you probably do not mean it that way, so we are probably talking about "apples" on the one hand and "3-inch ss bolts" on the other hand. Besides that I do not limit the investment method to AIM but for the sake of argument let's consider only AIM-like methods.
I look at it this way to get an answer to the question . . . I do not understand your answer so I try to make sure that I understand at least what I mean
Suppose we do 100 10-year "optimisation" runs of arbitrary real stocks that existed 10 years ago and maximise the yield on Portfolio Value(PV)and let the optimisation determine all the parameters that one has available in an AIM System that one uses. For my Testing I use 6 Vortex AIM parameters including the Min Trade Amount Which can be modelled as a fixed amount or as a percentage of the equity value. For a standard AIM there are also the same 6 variables so in that respect the only difference between the methods is the algorithms for the trades and the PC Update. During the optimisation all these variables are optimised. In principle the optimisation is exhaustive so that the absolute maximised PV is found. In the end I end up with 100 CER values ranging possibly from 100/0 to 0/100. Some stocks that were selected would have gone to zero value manybe. In reality one would allow his judgement to intervene when stock dive deep so for the optimisation that could be used for Bailing out, or at least some other way to deal with it. . .this could simply be normal investing till the cash runs out. . .this would appear the best option for the experiment I think.
I would the average all the CERs and see what comes out of it. Then I note the sum of the 100 PV's.
Next I would redo the 100 optimisations but start each run with a 50-50 CER and at the end I would calculate the sum of the 100 PV's and compare. Would you predict that the optimised PV-sum for the 50-50 CER Start Option would be generally higher than the PV-sum of the optimised CER Start Option? This would in my opining be a good way to test our statements on the question what the Optimum Star CER would have to be. If you suggest that 100 optimisations is not enough we do a 1000 of them. I woukld just do it as often as you think is enough or as far till we get the result of optimisation of all the stocks in the world that existed 10 years ago. That should settle the issue for anyone that can not completely follow your answer to the question on the optimum value for the initial SER for any stock.
The same type of experiment could be done with Standard AIM or any of its derivatives.
To start with, I will not take issue with your analysis of the 82 years AIM-run you have presented. . .its like me going into a boxing ring with Muhamed Ali in his prime years
The issue was not if the 50/50 split at the start can generate [I]reasonable[/I] profits for a particular investment case but that because of our ignorance over the future price developments of any stock the optimum start-split can not be determined. My argument was that any system has that same dilemma for its user, IF that investor wants to use a cash-equity split in his approach.
Besides that, with 1 trade every 3 years even most AIMers will fall asleep at the controls of their machine pretty quickly and wake up, like Snow White, maybe after 7 or more years, having missed 2-1/3 or more trades. Your analysis would appear of little practical use to guide an investor today that has picked a particular stock he likes and that according to his study is about to take off to the Moon. He would most likely be well advised to start with 90/10 Cash Equity Ratio(CER) and disregard your advice that 50/50 is optimum.
I think that you might be saying something quite different than giving an answer to question in the issue at hand: that if one analyses all stock histories and given the certainty that, from a particular starting point, some of them will start rising in value(and maybe stay there or will go down again) and that some will start dropping in value(and may stay there or may start rising again) and that, IF one would have calculated backwards what the optimum stating CER would have been for each stock, that on the average the average of the CERs would probably be close to 50/50. . .some CERs would have been optimum at 90/10 and some would have been optimum at say 20/80, then the average may well come out to be a CER of 55/45.
So, if you assume that all stock pickings will follow the same behavioural pattern as the average pattern then you could advice to start with the 55/45 CER for any stock one would have picked. . .or with a 45/55 CER if THAT was the result of the average behaviour of all the stocks. . . .But not even one stock will follow the average behaviours of all stocks. . .each picking will have it own dynamics, quite different from the average dynamics, so the dilemma remains: because of not knowing how the stock will behave the optimum CER for that stock is not determinable and will most likely not be 50/50, although a 50/50 Start CER would in most cases not result in a disaster, but the same is true for a Start CER = 60/40 or one of 40/60. . . .for a volatile account all of them would likely do OK if the stock does not become worthless.
In practical cases the best one can do is to study the company, its dynamics and consider that in relation to the general economics that are important for that company and then decide what CER might be the best one. Alternatively he might study the price history of the stock he picked and do an optimisation run on it and find out what the optimum CER has to be based on the price frequency update he would like to use. . .daily/weekly/monthly/annual . . . no one would ever pick1 trade in 3 years!.
This detailed approach would at least give a good clue for his starting CER if the investor has noting else to go on. Better yet would be if he figures out the current tendency of the market segment he is investing in and picks his CER on that basis, and do some rebalancing when that is required.
In the end, using Rebalancing on the basis of what happens in the market and how the portfolio is developing makes the starting CER less relevant in the long run anyway. All this means . . .as I see optimum investing. . .that each decision to invest and how to start should be tailored to the specifics of the company or the fund in which is to be invested. A blind 50/50 approach for a start because of the assumption of ignorance with respect to what is going to happen in the future is a poor management tactic.
I feel that your analysis using a 50/50 CER as Starting Shot, however skilful it is executed, has little practical value for the investor that sits on $ 1000000 and wants to know what the Optimum CER should be for his investment in Company XudwRY that he likes for one reason or other.
Right you are!
No one should not be picking on a corpse. Any undertaker and a hyena's are happy to get one.
Specifically I was not picking on Deep Divers. I love them!
I was actually referring to the suggestion that the stock market is "repetitive" and that THAT is somehow something new. This fact is the very foundation of AIM, but it knowledge does not help anyone to bail out in time from an Enron type of failure, if they do not have their fingers in the broth( not being part of the "cooking crowd").
We know full well that betting on a diving stock with put options can be very lucrative. . .but that is not because the stock market is repetitive but because of betting on the right horse.
Hi Fuzzy!
I am right behind you on that. . .or may be just ahead of you
I did a lot of AIMming that way before but I also had individual stocks and Warrants.
"The stock market is man made and repetitive".
In that case when Enron rebounces we know when to get out before it collapses!
$1000 invested in a stock today that rises to $1100 tomorrow has more capital at risk in that stock at that time. Part of the AIM process is to reduce that rising risk (sell-to-reduce-risk-exposure trades).
Of course, this is a major functions of the AIM-method, but one can also state as a prime function that if the stock gets into a rising trend then invest more capital. . in order to step out when enough profit is made, one makes more profit with a larger capital base. With the same logic one can set priorities on limiting loses as the price drops, then bailing out at a predetermined loss makes sense too and stepping in again as the prise recovers from a dip is also what AIMers do.
So both type of investors do not know in advance what the price is going to do: Both have the same market information available. All they can do is to select the type of investing they want to do and try to answer the question as what amount of stock they want to start with and how much reserve they want to hold on to. Both investors have against them that they do not know what the prices are going to do and so have the dilemma they can not decide what the optimum equity/reserve ration should be without having good understanding of the market trend.
It is irrelevant that investing more capital after a price had risen creates more capital at risk. After a risen price the profit is larger too because of the extra invested capital. . . the investor can bail out at any level of profit that is enough for him. If he waits too long and the price drops again that is simply part of his game. . .for as far he is not a part of an ignorant herd that knows nothing about the market dynamics. If they know their business they might bail out with a large profit while an AIMer has liquidated too early in the view of the investor that sits on the large profit stack
That is my take on the point of view that all investors have no solid information for deciding what the optimum Cash/Equity Ratio should be when they start their investment.. .it is not only a problem for AIMers.
AIMers have a similar problem: If they keep buying worthless shares on a deep diving market then they lose their shirt
In my previous post I forgot to mention a whole series of
Is7550 AIMS
such as for example the LADDER AIM and the MARTINGALE AIM and the 50% BALANCING AIM
Also I wanted to mention my own exponential Ae^(ax)AIM, but I forgot.
PS:
Clive, this a compliment. . . I kid you not!
A further strike against us[AIMers] is that we can't know, in advance what the optimum level of initial cash reserve should be.
This counts for any investment method in which not al the available cash is used-up at the start. . .plenty of non-AIMres do that too and invest more as the price goes up, which is logical as long as one becomes confident, after the first cautious buy, that the price is in the lift and that one can escape before Big Dipper arises. On this score not the method is the important thing but the degree to which one understands the stock market dynamics.
This is the "Overlay Management" that I frequently mention and it is most important for any investment technique.
You are more or less stating the same thing with you question: "the larger question becomes is AIM still a valid system to use on this particular holding? This all comes down to: the more one understands the market and the companies in which he is investing then his "System" becomes his own overlay management technique and no standard answers to this question are available other than my motto: “I don’t hold on to stock you think is not worth owning”. . what others say is then irrelevant, even if it is Warren Buffet that said it.
Applying some sort of overlay management is what experience AIMers now-a-days are doing to some degree already as they continually try to intervene with the "AIM by the Book" method and as a hobby try to adapt the basics of that simple “AIM Starter Kit”.
I would be surprised if there are any experienced AIMers left that do not intervene as they go, or do not tweak the "Dials" on their "machine" or redesign their "machine" so that it has more "dials" to tweak with.
The interesting thing is that AIM is ridiculously simple in its concept so anyone that starts with is it is usually capable to think of improvement. . . . “With a system this simple there must be ways to make it better” is an easy step to come to believe. When you consider a complex investment program that uses a multitude of inputs and a hidden program structure no user is capable of “getting into” the software core to “fiddle” with it.
The simplicity of AIM makes it such an lovely thing that we thing should be fixed and especially for Americans it acts like magnet on steel. . . they are brought up with the philosophy that is based on this:
If it ain’t broke, don’t fix it!
AIM broke the day it was invented, it has a flaw, but it works reasonably well for newcomers to the system, but Americans and one Dutchman are “fixers” by mature. . .the Do it Your Self Mentality so useful to The Pioneers was born there. . .so they, and the one Dutchman, soon discovered that AIM was “broke” and they started to "fix" it as they dicovered its flaws, so now there are 15 or more “repaired” versions of it:
Lichello Off The Book AIM; Vortex AIM; TurboVest AIM; PremiVest AIM; High UP-AIM, Low DOWN-AIM; MACRO AIM; MICRO AIM. . . Don Calson AIM, LOW Cash Burn AIM, CASH Limit AIM. . .just to name a few I can think of.
How many amateurs, like the high calibre AIMers on this Forum, have made themselves a “repaired” version of Wall Street?
Case closed.
Adam, I would have still published the details if I had invested the money. When I did invest between 1993 and beyond I also provided information on my investments. I did quite well generally and the small loses were abundantly compensated for. As I figure it many people on this forum have not hesitated to publish the details of their investments, even when they lost.
Recently running over from 2009-2010 I did some investing with a small amount of dough, and one of them was a Disaster Portfolio with penny stocks and also with a Turbo. . . Won some and lost some. . . overall I lost a bit but percentage-wise far to much, Because the funds were small the trading cost @ € 10/trade were too large so I quit. . .the volatility was too small generally but one of them, DICO rose to 8 cents recently from yo-yoing up and down for a while between 1 and 3 cents, but I was already out by the time it surged
Some of these loses I published as well.
Adam, I do not understand your remark. . . Why would anyone be reluctant to post a Dry Run Investment Portfolio of SPY?
Maybe I have not made it clear enough at the start that this portfolio is an exercise for an investment using optimised parameters based on historical prices to get the parameters set by some "technical" means instead of purely on the basis of "gut feelings" or just arbitrarily. The idea is that it must be more likely to be right than picking the parameters by casting a die.
Anyway, experiments always have some redeeming qualities for the learning effects they can provide and are therefore worth showing them, even if it is how not to set the starting parameters for a Vortex AIM Program. . . may be it gives me a bit of a start on write the next book I have in mind:
"How not to make a Million Dollars in the Stock Market Automatically".
Spy Portfolio Results 2011 in Vortex AIM
[Remark 6] has no significance in this Table as it has eneterd the cell bij mistake.
See Post # 33671 for Parameter Settings based on an Optimization with Historical Prices for 11 year period 2000-2010.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=59317257
Active Portfolio Over-Lay Management will be executed at the time the price behaviour starts to deviate form the historical trading range. For this there is no fixed procedure. Parameters shall be adjusted as I see fit. If it seems appropriate this might be done using a new optimization with more recent historical data.
I have started the SPY Portfolio for 2011 on the basis of the optimization results for the period 2000-2010 (monthy prices).
As of now I started the run with day prices but if the volatility is low I would probably use monthly prices.
Start condition
Investment $ 20000
Trading Cost = $ 10,95/trade
Interest 2% Annual Base. Compounded on each date entry.
Buy HZ= 20%. . . Sell HZ= 7,5%
Buy Aggression Factor Fb= 0,8 . . .Sell Aggression Factor Fs= 0,6
Cash Limiting Factor = 0,6( when Buy Amount > Reserve Amount Buy 60% of Reserve Value(No borrowing on Equity Credit).
Yield Calculation using ROTAI(using Time Averaged Investment)
Cash to start= 72% = $14.400,00
Stock to start 28% = $5.600,00
Price 01-01-2011 = $ 127,05 Closing Price
Number of shares = 44;08 Trade Cost= $ 10,95
Stock =$ 5600,00
PC=$ 5600,00
Reserve = $14.389,05
PV= $ 19.989,05
Regards,
Doug,
Thanks, but here is not need to do that. In order to mimic your Back Test I would need to adjust the Excel spread for 133 lines manually on the monthly price run. If I plug in the daily prices In have to put in about 3800+ lines in the program and still do manual corrections if I have use a different date for executing a trade that was calculated on the prices of the previous trading day.
Considering all that I would have to rewrite the spread sheet. As I mentioned in my previous post the comparison would still mean noting as Vortex does not have a Standard By The Book default version. . . any outcome would simply be the result of how I decided to set the initial conditions for the trading aggression factors
I have done the 3 optimisation runs on monthly prices and that is more than enough work already.
The SPY prices showed a 10% loss over the 11 year period for the Buy & Hold case. With the ROTAI yield of between 6% and 15 % per year for the two relevant runs it becomes clear that an AIM-like strategy can work winders relative to the Buy and Hold method.
My 3 Optimization Results can be viewed on
http://hubpages.com/hub/robertlichelloAIMSystem
Doug,
I do not understand where you get you SPY prices from. I downloaded monthly SPY prices from 3 January 2000 to the end of December 2010 and the values I get are quite different than you have placed on your Chart : $ 148,25 Starting Price and I get a closing price for that day of about 135, there must be something wrong. . .How many funds with the name SPY are there?
Then another problem arises to compare your Back Test with a Vortex. Back Test. You state you do the calculations on the closing price at the end of the month and do the trading on the prices of first trading day in the next month.
This I can not do automatically in Excel. . . .the only prices I get are the prices at the beginning of each month. In order to find the prices of the previous trading day I have to print out a list of day prices for 10 years and adjust for every trade the prices manually in the Excel spread. So for every trade I have to enter first the price of the previous day, calculate for the number of shares to trade and then replace the opening price for the next day and manually correct for the number of shares that were calculated. This is not going to work.
All I can do is enter the month prices and any trade that is triggered for that day simply accept it as the execution price for that date at the opening price. . .the number of shares would then be different from the number calculated with the price of the previous day.
Thus a comparison would not be very meaningful except for a very rough indication and then the result would simply be a consequence of the arbitrary parameter settings at the beginning that I would have picked. . . .so the comparison would not be based on the system it self but mostly on my judgement for the initial parameter settings for better or worth. It would mean nothing
So the only real test is that I do an optimization run for the 10 years using for example average prices (Hih+Low)/2
Statistically this would mimic trading that would be executed at some time during the day and one has no control over that. which you have no control. . using the average price one would, I think, get a reasonable result. The optimization would not mimic real result either but it form a basis for starting out with a real investment . The one can adjust the parameters as one sees fit..
I am sure that doing a single back test is of no use to compare it with the result you got. . .you where testing a standard Lichello algorithm. In Vortex there is no standard default set of parameters. The only possibility I have been thinking of in the past is to use as a default is to set the trade aggression factors fb=fs=0. . .very conservative trading action . . .but still a bit more aggressive than Standard AIM is. This would result in:
Trade=1*(PC-V)
limited by the Holding zones and Minimum Trade Values. These very conservative settings are not regarded as defaults but I use these as recommendations for newcomers to get a feel of what an AIM-like system does and that to play with different trade aggression factors to see their effects. In a sense this would create a basis for comparing results but it would still be meaningless because setting fb=fs= 0,5 would also be a valid Default Set. Even a Default Se of fc=fs= -1 is a valid Default Set. When I set
fb=fs= -100 then this would simply result in a ABHIM approach.
ABHIM = Automatic Buy & Hold Investment Management J
I believe there is no point in doing the Back Testing on SPY unless there is an interest in finding out what an optimized yield would be for the 10 year run you did. .then the parameter settings are achieved without my ideas as to what they would have been at the starting point.
In case you want to see that I would need a set of month prices for the SPY fund from you in Excel.
"‘Tis better to remain silent and be thought a fool,
than open one’s mouth and remove all doubt." - anonymous
You might not believe it but this the phrase I coined years ago. . .I am not sure where I used it first.
Then again. . I might have opend my "mouth" here a bit too soon!
PS:
On Internet it is claimed the citation comes from a guy called Samuel Johnson.
It is obviously a blatant lie if I said it first!
OT Stirling Engine Application
Someone asked me a question on small & Cheap 100 W Stirling Engines.
I think it was TooFuzzy but it could have been Grabber or someone else. In case you are interested write me a personal message for some more details from the Stirling Engine Market.
"Cheap" commercial units appear nit to exist, but "cheap" is relative
You have to make your own if you want it real cheap like this:
Buy Price = $(200000)^0,61
Here’s a You Tube version. . .for Fun to start with: