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$8 a trade at Fidelity.
Ray
Thanks Tom,
That makes sense to use my minimum purchase order as a percentage of Portfolio Control instead of Stock Value.....or Virtual Stock Value (in the event I am using LD-AIM). I can easily adjust my worksheets by adding one additional column.
Again, thanks.
Ray
I seem to recall someone....I think it was Too Fuzzy....that suggested increasing SAFE by 5% with each subsequent buy. That is, begin buy SAFE at 10%, then to 15%, then to 20%, etc. That will slow down the cash burn rate.
I have been giving this strategy some serious thought lately because of different market conditions.
Ray
Hi Adam......RE: Cramer
I came across this blog the other day about Mr. Cramer.
http://www.trendfollowing.com/whitepaper/jim-cramer-exposed.pdf
I gather from this article that one could take Mr. Cramer's recommendations with a grain of salt.
Ray
I think I grasp the concept on the first purchase and sale. However, after one makes a purchase does one adjust the PC by adding 50% of that purchase? If so, what does that do to the future tracking of the EMA?
I am a slow learner and I am having some difficulty mentally 'seeing' how it works. That is how it sometimes is with mentally challenged people like myself.
Ray
That is an interesting concept...
At first glance I would suspect that it might require more monitoring than regular or LD-AIM. The reason I say that is because of the inherent changing nature of the moving average itself. However, at this point I have no way of knowing how much additional monitoring it might require.
I have been using GTC limit orders. Unless I am wrong this might require an actual calculation on some predetermined monitoring schedule...say, bi-weekly or monthly.
What do others think about this?
Ray
Tom....thank you for saying what you just said.
I have a sister-in-law in Gulfport who has been on duty at the hospital where she works since Sunday afternoon. I have another sister-in-law who lives outside New Orleans. What my wife and I hear from them seems different than what is being reported on the news.
This is a good forum and should be politically neutral (if there is such as thing). Just stating my opinion.
Ray
Adam....
It is interesting you should bring up this subject. I was bored today and began watching Cramer. He was enthusiastically promoting Dicks Sporting Goods...DKS. I checked the stock's price. It closed at $39.23. In the after hours trading during Cramer's show it is up over $41.00....about a 5% increase in after hours. Coincidence????
Was the gentlemen who used to talk up stocks on CNBC named Dan Dorfman? Anyway, that is a name I remember.
Ray
This is only a test.........
I am trying to see if I can post a chart. There is nothing important one way or another with this chart.
I hope this works.
Ray
It is kind of dull around here lately....
Not many are posting....I guess most are on vacation.
I had a couple of sells in the past two weeks. Nothing to brag about though.
Ray
Adam,
A public figure does have the ability to influence listeners. I think, however, that he and others would have to do a complete disclosure on any stocks they owned that they might be recommending........though I am not sure about that.
Ray
No doubt......
I am sure there are many people who buy stocks sight unseen...just on the word of someone they see on TV. I think that an awful lot of that was going on during the Bubble.
Ray
I want to wish everyone on this board a very happy and especially a very safe July 4th.
This forum is much more civil and informative than others I have seen. Thanks to all.
Ray
Hi Aimster,
As I said in the previous posts all of my information about Position Cost Averaging came from the book "Making Money is Simple, Just Boring".
I reread the book this weekend to make sure I knew what I was speaking about.
Throughout the book Mr. Nielsen continuously refers to his method of investing as "Position Cost Averaging". Mr. Newberry himself says that Uncle Fred Nielsen had been doing it this way for many years.
Here is what I came up with. Just looking at the syntax of the phrase "Position Cost Averaging" it would appear that that is exactly what Uncle Fred is doing.
By that I mean he does not change the amount of his Program Principal (his term for what we call Portfolio Control) at any time during all of the time he has a program in a stock. So, all of the investing revolves around his "postion cost"....basically you are averaging your purchases and sales around your original "position cost". There is no SAFE. Uncle Fred says that the only thing that relates to a SAFE in his program is the minimum amount that you trade after you establish your "position cost". Uncle Fred does say that he developed his program after reading Lichello's book. He just felt that AIM, as created by Mr. Lichello, was too conservative.
The way Mr. Newberry described his software it appears to be just exactly like AIM except that it will not allow a purchase to be made from a negative cash position. Otherwise I did not see anything different from AIM in his description and how his software works.
Anyway, as I said previously, the only time I had come across the term "Position Cost Averaging" was in Uncle Fred's book. I had not previously seen Mr. Newberry's PCA software in action.
Uncle Fred does refer his readers to Mr. Newberry's software web site. He is speaking on page 11 about AIM and his system's differences with AIM. On page 12 he says that if readers want to learn more about how AIM works they should get a copy of Mr. Lichello's book.
On page 12 he says, "If you can't get it from your local bookstore, contact the firm in Florida that has the software for the system. Their web page is: http://www.stocksystem.net/ ."
At this point we might be discussing how many angels can dance on the head of a needle, so I think I will drop the subject.
If I have appeared to be like a dog that doesn't want to let go of a bone I apologize to all the readers on this forum. It is a good forum and I don't want to foul it up.
Ray
I was wrong in the information I posted about PCA. I was only going by the information in the booklet, "Making Money is Simple! Just Boring", by Fred Nielsen. I have already quoted from the book where he does not use a SAFE and he does not, nor did he adjust his PRINCIPAL PROGRAM (his form of Portfolio Control) for any purchases.
Also, I did a 3 month subscription to the author's newsletter last year and saw how he did his calculations on his stock recommendations.
That was what I was going by and what I understood PCA to be since I have never seen the software in action.
Here is the website where I purchased the booklet and had a trial subscription to the newsletter.
http://www.automatic-investment-management.com/page2.htm
He can see where the author recommends this software along with purchases of his booklet and the newsletter subscription.
Now I am curious as to how PCA differs from AIM.
Anyway, I will try to be more accurate in the future when I do a comparison.
Sorry for the misinformation.
Ray
Too Fuzzy,
That is correct. It is for people in retirement, like me, that are no longer accumulating, but are in the distribution phase of their investing lives.
It can also work for investments that never go high enough nor low enough to trigger the AIM-HI executions...very conservative investments with little volatility. At least with these type of investments, depending upon where the the triggers are set, you do get a chance to buy low and sell high around a fixed dollar amount.
Ray
Grabber, thanks for the comments.
As you know I am new to the AIM system and its different variations.
Where I got my information about PCA was from a booklet entitled "Making Money is Simple, Just Boring" by Fred Nielsen.
In the booklet Mr. Nielsen says if the reader is familiar with AIM then they would also be familiar with the PCA concept. On page 12 he recommends readers read Mr. Lichello's book.
On page 11 he says the following,
"The 'AIM' expounded on by Lichello is very conservative, and installs what he calls, -'SAFE'. I do not include a 'safe', which is the reason I prefer to use the term Position Cost Averaging to make sure folks know the difference in methods applied to this age old system of making money".
Mr. Nielson spends a lot of time in the booklet explaining the difference between Position Cost Averaging and Dollar Cost Averaging.
Also, he differeniates between Portfolio Control and what he calls Program Principal.
On page 23 he defines PROGRAM PRINCIPAL as:
"The same dollar figure as the initial purchase of stock".
He goes on to say,
"This figure will 'never' change throughout the entire lifetime of your program. It is the 'Program Principal' that will guide all of your decisions during the lifetime of the PCA program".
In all of the examples he gives throughout the booklet the 'Program Principal' never changes....in essence, it is the exact same mathematical calculation used in Constant Dollar Plan investing.
Thus, when you eliminate the SAFE and 'never' make any adjustments to the Portfolio Control, or as Mr. Nielsen describes it, the Program Principal, what you are left with is the Constant Dollar Plan.
As I said, I first read about how Constant Dollar investing worked from an investments textbook back in the 80s. I seem to recall the title of the textbook was "Fundamentals of Investing", but I could be wrong about that since I no longer have the book.
In his booklet Mr. Nielsen does say that PCA software is available by the gentlemen you mention and he gives the website address.
So, my knowledge of PCA is from Mr. Nielsen's booklet...not from the software.
A good description of the workings of the Constant Dollar Plan are found in the book, "50 Ways to Mutual Fund Profits" by Alan Lavine beginning on page 96.
In closing I just want to say that if I confused anyone then I apoligize.
Ray
Hi AIMster,
The way you summarized it basically covers Constant Dollar, or PCA.
For the sake of illustration purposes, just assume you have $50,000 in an investment...fund or stock.
You next decide what amount or percentage will be your execution trigger.
In this example, just assume you decide that you will buy or sell when there is a 10% movement up or down in the value.
Thus, when the investment increases 10% or up to $55,000 you would sell $5,000 which would take you down to your Constant Dollar target of $50,000.
OTOH, if the investment decreased 10% or down to $45,000 you would purchase another $5,000 to bring the value back to your Constant Dollar target of $50,000.
That is about all there is to it. No other calculations or algorithms are needed. Your only decision in the process is just decide what amount or what percentage is sufficient to create a trigger.
To my way of thinking this would create a lot more activity than Lichello's AIM-HI method on growth and income mutual funds which he recommended for retired investors.
I am retired and considering becoming more conservative in my investment choices the older I get. I could be wrong (and I usually am), but I did some backtesting on some popular growth and income funds held by a lot of retirees. Even during the big declines in 2002 AIM-HI did not create enough activity to generate any "buys" at low prices on a lot of these funds (which is where AIM gets its ammunition). At least Constant Dollar, or PCA (same thing) would have generated at least one buy during this period....probably two buys.
This back testing, plus the tight trading range we now find ourselves in on a lot of these funds, had me thinking back to when I first learned about this technique of portfolio management. That is why I brought it up.
Ray
Jack,
An addendum to my previous message to you.
I came across this website that looks like it sells PCA software.
http://www.stocksystem.com/
They have a telephone number listed for product information. The number is (904)-491-8900.
I actually came across the techniques used by PCA in the 80s while I was still working and studying for a financial services designation. The techniques were described in one of the required textbooks and were called "Constant Dollar".
Ray
Jack,
I don't really know the answer to your question.
I don't use any special software for AIM. I just use my old $10 Casio calculator and some worksheets I designed and had printed.
Ray
Adam........
I purposely set the ZigZag setting at 10%. If you recall I was talking about eliminating SAFE on investments that move in a very tight trading range...such as, closed-end funds.
Now then, you might recall that I said that if I decided to do this then I would sell if the investment moved 10% higher, or do a buy if the investment moved 10% lower. There are no adjustments to the portfolio control....it remains constant. PCA, Postion Cost Averaging, is a modification of AIM....it has no SAFEs, nor does it make any adjustments to the portfolio control after a program is set in place.
Therefore, I set the ZigZag setting at 10% to see how many 10% moves, up or down, which would trigger an execution, I might get on a recent purchase I made (CEE). With PCA, after an execution made on a 10% move you reset your Limit Orders 10% both up and down. So, at that point any 10% movement up or down would trigger another execution.
10% is not a magic number. The investor can use any percentage or even a dollar amount if he so chooses. For example, if he had $50,000 in an investment and decided that he would place buy/sell limit orders any time the investment moved $3,000 in either direction, then that would equate to a 6% trigger.
Just experimenting around with using PCA on large-cap stocks or funds that move up and down in very tight trading ranges. Otherwise, using AIM with the normal buy/sell SAFEs and buy adjustments to the portfolio control number you might go two or three years or even more and never get an execution. AIM works best with volatile investments. I am experimenting to see what works and gives me the necessary friction with non-volatile investments.
Take care,
Ray
Hi Tom....
After a few more ZigZag charts I see what you mean about closed end funds having a tight band. I also see what Grabber means about bracket creep. One of my recent purchases is a closed-end fund (CEE). In looking at a chart of this fund it looks like an almost perfect candidate for eliminating the SAFE and buy adjustments to portfolio control.
http://stockcharts.com/def/servlet/SC.web?c=cee,uu[l,a]daolyyay[de][pe10!c75!f][vc60][iUah12,26,9!Lg...
My browser won't let me cut and paste just a chart. You guys should be able to highlight and paste the URL into your browser. Sorry for the inconvenience.
Ray
Thanks guys for the input into possibly eliminating the SAFE on stocks that trade in a very narrow range. Your comments were pretty much what I was thinking about.
I believe I have had my share of very volatile stocks in past years and I think that I will go for less volatility in my stocks in the future. Probably buy more in the way of ETFs and closed-end funds, along with some large-cap stocks.
Ray
Thanks Keith.
That was my feeling about this. Some of these very popular large-cap stocks which are closely followed by numerous analysts move around in very tight bands and offer little opportunity for a purchase or a sale if the traditional AIM SAFE is used.
Since many readers eliminate the SAFE on the sale side my thoughts were that eliminating the SAFE on both the sale and the buy sides would generate some friction on these conservative growth and income issues.
Ray
This is for you experienced AIMsters…………
For a conservative investor, like me, who has usually bought stable Dow type stocks that do not have all that much volatility…..what do you think about removing the SAFE factor out of the calculations altogether?
The purpose is to generate some transactions.
I have considered using PCA – Position Cost Averaging – which does not have a SAFE, nor does it adjust the Portfolio Control when purchases are made. The major control in the equation is amount of the minimum transaction.
For example, assume I purchase $10,000 of Merck. I then decide that $1,000 will be my minimum transaction. I set buy and sell Limit Orders to be executed whenever the stock value increases to $11,000 or decreases to $9,000.
Have any of you invested in this manner? What do you think of doing this with a conservative stock in order to generate some buy/sell activity?
Thanks,
Ray
Hi Adam,
You are correct. If you look at my original message I said that this strategy works on a stock you do not intend to hold very long. Naturally if you intend to hold more than just a few weeks or a few months then you would want to AIM the investment.
Also, as I said in my message, this is not my personal cup of tea. I prefer a SAFE in my calculations and personal investments.
Ray
I saw something somewhere once that is a cousin of AIM. It was called PCA or Position Cost Averaging. In the past I have also seen this system called Constant Dollar investing.
There is no SAFE involved, nor is the Portfolio Control ever adjusted upward whenever a purchase is made. PC always remains constant. All of the buys and sells revolved around a fixed dollar amount that never changes. The only control you have on this system is the amount you decide will be your minimum transaction.
For example, if you purchase $10,000 of a stock you might decide that you want a minimum transaction of $1,000. In this case you would place your Limit Orders to be triggered whenever the stock value either grew to $11,000 or declined to $9,000.
It will generate a lot more transactions than AIM or LD-AIM. However, it will burn through cash very quickly. I have done some virtual trades and it does not generate as much bottom line profit as AIM.
If you do not expect to keep an investment very long and you want a lot of transactions you might experiment with this. However, I would do it on paper for awhile because of how its ability to quickly burn through cash. I personally like the idea of using SAFE. I am conservative in nature.
Just a suggestion.
Ray
Too Fuzzy:
Now you are beginning to sound like me.
Ray
My mistake...
I mistakenly said in my previous message that Too Fuzzy was creating a new service. I meant to say Fuzzymath.
Ray
This is sort of a side note to Too Fuzzy's new service.
A couple of years ago I came across this website that ranks the Dow stocks as to how close they are percentage-wise from their 200 day moving average. They also rank them by their past 12 month performance. Here is the link:
http://www.dowunderdogs.com/Ratio.asp
I know this is nothing compared to what Too Fuzzy is doing, but I thought I would pass it along anyway.
Ray
Thanks,
I appreciate the info.
Ray
How do you guys paste these charts onto your messages?
I have tried the old fashioned way and it doesn't work for me.
Thanks,
Ray
Interesting screen.....
That ETF sorting screen on Yahoo is interesting.
It shows the 3 year highest beta going to IGN...Goldman Sachs Networking with a beta of 2.52.
IBB is shown with a beta of 1.20.
Ray
Hello Troy,
I can understand your initial questions and criticisms of the website.
For me personally the book did a lot more in explaining their concepts than the website. I read their original book and this subsequent edition long before I went to their website. That helped me as I moved around the website.
One thing about the default screen of having a 10 year excess return metric. In the book they go to great lengths to explain how this might be very excessive in a lot of companies that have strong competition in their industry. The website has this to say about that subject:
Default Inputs:
"We have certain inputs that we have given an initial value, and the investor may change to suit the company that's being analyzed. These include the company's Bond Spread to Treasury (1.5%) and Preferred Stock Yield (7.5%). If the stock of the company has a beta value, we look it up and use it. If no beta is available, we use a default value of 1.0.
We have estimated a constant Equity Risk Premium of 3.0%, a 10-Year Treasury Rate of 5.0%, and a 10-year Excess Return Period. Like all of the other inputs, these three items may be changed by the user. A 10-year Excess Return Period is a very long time for a company to keep a competitive advantage. For many companies, especially financial companies, a 5-year Excess Return Period may be more appropriate and certainly more conservative."
This website is only one tool....just like the Dividend Discount website.....and should be only one thing that is considered in the research.
Take care,
Ray
Speaking of betas and other stuff...
I don't know if any of you have had the occasion to use this website:
http://www.valuepro.net/
It is based upon the formulas used in the book "Streetsmart Guide to Valuing a Stock" by Gary Gray, et al. Essentially it is the technique of valuing a stock using the discounted free cash flow to the firm. It is an interactive site where you can change many variables of a stock to arrive at different intrinsic values. The book has helped me in learning how to approach the research of a stock and how the different metrics effect the price of a stock.
The site also shows the betas of the stocks. I have noticed that the betas reported on this site differ from those reported on Yahoo. These betas will probably also differ those reported by Value Line, though I have yet to check that out.
I am just passing this along for what it is worth.
Ray
Thanks....
I appreciate the information.
Ray
Single country ETF.......
I was wondering if anyone has ever set up an AIM program for the MSCI-Austria ETF. Its symbol is EWO.
I have been looking at this ETF for some time now. It seems to march to its own drummer......not in lockstep with the rest of the European indices. I read somewhere that most of its trade is done with the Eastern European countries that used to be part of the Soviet bloc. That is why it does not always correlate to the rest of Europe.
Thanks,
Ray
Adam.....Bollinger Bands look good.
I was doing some charting yesterday using Bollinger Bands. This indicator appears to be what I have been looking for as far as entry points for stocks go. It looks like using the lower band for a Limit buy order is an excellent tool.
Thanks for the info.
Ray
Hello Adam,
You are probably correct to go with a less volatile factor. I have not tried any backtesting with 1.5X or 2X. After some conversations with "Grabber" I decided to start my backtesting with 3X and go up from there.
I did raise that issue about selling too soon. The reply was something to the effect that you just look for another stock that would appear to be a good LD-AIM candidate. If we were back in the roaring 90s I would have taken issue. However, with this trading range type market we now have I can see the other side of the coin. Unless you catch a good stock at the bottom of the trough it might be hard to catch more than a 25% gain. 3X sell will obtain a 38.1% gain from the investment before depletion. That is good enough for me.
Have a good week,
Ray
Thanks for the information.
From the worksheets and spreadsheets I have done on actual stocks and some different pretend scenarios it appears that 4X actual purchase yields the best returns for LD-AIM.
Using the AIM-HI purchase/sell parameters for a stock that declines 40-50% and rebounds back to its starting point it appears that 4X actual purchase is the best break point. Going to 5X or higher actual purchase results in diminishing profit returns.
For a more conservative approach it seems that 3X yields excellent results also.
I have not done any studies on stocks that go "up" after being purchased because I have been snakebit in the past. My history has been that my stock purchases normally go down after I buy them. Therefore I did my spreadsheets on stocks that go down and then rebounds to their original purchase price.
Ray