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"There are so many links at the bottom of the Inbox, which one r u talking about?"
The very, very last link, right at the very, very bottom of the iBox. You can't miss it, it says something like "(join) 'Dont Bite The Hand That Feeds You ' E-Mail List". I just joined, and now it reads "Remove yourself from 'Dont Bite The Hand That Feeds You ' E-Mail List".
However, you will need to sign up with iHub first and then to sign in, otherwise the link doesn't show up.
This is something that might be mentioned just under the link, something like: if you don't see the signup link, sign in as a iHub member first
Regards,
Karel
aim hier,
I didn't mean to suggest that AIM is a bad strategy. Of course not! I didn't think you were. I was just pointing out some differences
Perhaps I take a rather principled tack here (Yannis hasn't reacted yet), but with all the similarities I like to think there are some differences between gambling and investing.
Qarel
Hi aim hier,
well, if you define Martingale like that, there is some vague resemblance, as with any gambling strategy. I think those resemblance already stop however when it comes to losing, as the Martingale and almost every other gambling strategy make you lose all your money for certain, if not in theory, then in praxis. But that is as may be.
My main concern is that Yannis mentioned a gambling strategy in connection with investing. To my mind, that is a disastrous combination. Indeed, he mentioned a gambling strategy, the Martingale, that is invented (and gets continually reinvented) as a surefire way to win in a completely automatic way. No thinking necessary: just follow the plan. And then it leads to disaster, as it inevitably must.
I don't want to quibble about similarities between AIM and gambling strategies, but if there are any, then they are (I hope) completely fortuitous, and rather unfortunate
Regards,
Qarel
Hello Yannis; just some musings.
First, what do you refer to when you say Martingale? When you mean "doubling down" on even chances, or less than doubling down on less than even chances, AIM is not at all like the Martingale system. With the Martingale system (doubling down) you wait for a 100% gain on your last bet in the series to make a 100% gain on your first bet in the series. A gambler, who always has limited funds, is sure to lose everything this way sooner or later, even without the little tricks the casino uses to better the casino odds (maximum bet).
In gambling terms, AIM is more about bankroll management than about a betting strategy. AIM forbids plunking down all your cash at once, and only allows you to dive in deeper when the stock has become cheaper. It also forces you to take money off the table when your stock is winning. This has, of course, the (strategic) consequence that you buy low(er) and sell high(er).
Of course you may ask: "but what if a stock dives even deeper than my cash position for that stock allows?" Well, if that happens, your bankroll tells you that you made an error of judgment. The size of the cash position may be viewed as your estimate of the maximum amount that the stock will go against you. With the originally proposed 50% cash position, the stock may drop about 50%, with an initial cash position of 33%, the stock may drop about a third before all cash is exhausted. When it has become clear that you made an error of judgment, you should reconsider. What your conclusions then will be, will depend on a lot of things. But never should you buy more automatically, because "AIM tells me so". On the contrary, AIM says you have zero cash for this stock, so you CAN'T buy.
When you pick a stock for AIM (a decision AIM tells you nothing about), it should be a stock you want to invest in, not just a stock you want to make money with, because AIM was conceived for the long term. Then you should decide how big a position you want to reserve for this stock (again a decision AIM tells you nothing about), and then you decide the size of the initial cash position. A good indication for that may be Tom Veale's IW, but for riskier stocks you probably should reserve more cash. AIM takes it from there.
Of course, there are lots of other interpretations of AIM! Have fun finding your own way!
Regards,
Qarel
Timothy Middleton (Moneycentral) on ETF's
http://moneycentral.msn.com/content/p78248.asp
this is a follow-up from
http://moneycentral.msn.com/content/P66161.asp
Regards,
Qarel
Conrad and TF: the question are stop losses and AIM compatible has a very clear answer: yes and no.
No, because AIM can put downward volatility to very good use.
Yes, because when a position goes too far against you, it might be good to cut your losses.
When traders talk about stop losses, you often hear numbers in the 7%-10% range. It is hard to see how this could possibly combine with AIM. But when you have used up all your cash in a position, the stock may have dropped 33% or so and you might very well have reached stop loss land.
I think an AIM stop loss should be mental and not automatical (OK, let's reconsider this stock. Am I sure I have nothing better to invest my money in?) And an AIM stop loss should be W I D E, and allow for at least a handful of buys.
Regards,
Karel
karw, thanks for a look into heaven! (eom)
Hi karw, With Robeco/Rabobank you can use limit orders. They will be executed against the opening price. This sounds good, but one more question: how is such a limit order triggered? These are exchange traded funds; are the orders triggered during the day, and executed at the next open, or triggered and executed at the open? The latter would be (mutual fund) investor heaven, so I am afraid that would be asking too much
Regards,
Qarel
Karw, how do you execute 1% trades in a mutual fund? Isn't it horribly difficult to time transactions in a fund? (I found one were my buys are executed 3 days after the order. I'll be moving in a hurry!)
Regards,
Qarel
Is the BBDB chart correct? When I calculate the Cash reserve from the sells shown, I get 5277. And the Buy and Hold return should outstrip AIM, as in any sell-only stock (and it does: 83% against 37.94% as given; this attracted my attention!).
Regards,
Karel
Nice, nice! Simple does it! One litle point: perhaps you could add another popup after a buy advice with the new Portfolio Control, using the standaard 50(%) or an entry value. Or perhaps not, as this will depend on the actual buy. Anyway.
I like it! (But it will not draw me away from AI ... )
Regards,
Karel
Hello Conrad, I think I agree completely with your post, but with a proviso for point 1 (AIM tends to sell out). In fact, the Lichello Cycle is very beautifully tuned to AIM, the more I look at it, the better I enjoy it. What the negative TWROI ("your" ROCAR) shows, is no more and no less than that AIM spins off money each cycle. It should do so, for Equity and Cash need to remain more or less balanced. They do! Each time the stock price reaches $10, AIM returns to an about 58/42 Cash/Equity balance, as after the first time the cycle returns to 10. That balance is dropping very slowly, to 56/44 after the 14th cycle.
Regards,
Karel
Hi Conrad and Tom, I ran both your ROCARs against the first Lichello year (10 - ... - 10 - ... - 10) and found a TOM ROCAR of 138% and a CONRAD ROCAR of 144%. So I was tempted to run al 7.5 years and found a five digit TOM ROCAR and a negative CONRAD ROCAR. Conrad's ROCAR turned negative because the sales outweighed the buys, $$$ wise, and the EI (Effective Investment) divisor became negative.
You guys take it from here! (or from somewhere else entirely)
Regards,
Karel
Hi PDAH, best of luck! I have this list in my favorites, so I will be a part of your audience!
Regards,
Karel
Patrick, that sounds like good sense [eom]
Hi LC, it is always good to check for the worst case scenario. And of course not all stocks in a basket would suffer from a worst case scenario. In any case, the stop loss in Reverse Scale is a protection measure, something that is lacking in AIM, apart from your own good sense.
Regards,
Qarel
Hello Charley, I am not out to sell the Reverse Scale method to you. Its aim is to pick a basket of stocks that might become ten baggers in a few years. If, after one or two years, some stocks just don't move, I would just liquidate them and pick new ones. It is not in the rules, but it seems logical enough to me. I would use some kind of rule like: I expect a return of 20% a year on every stock. If, after some generous period, some stock doesn't meet that rule, I would sell it. (With my kind of luck, it would start to move after I sold it.)
By all means, pick a strategy you are comfortable with. It will make it a bit easier to follow.
(edit: BTW, I think this also answers your other message. It is perfectly possible for the RVS strategy to be profitable without a 10 bagger. You still don't have to like it.)
Regards,
Karel
Hi AIMster, perhaps I have less problems with AIM and ReVerse Scale (RVS), because I already am both an AIM guy and a momentum guy. See my profile. In my momentum persona, I like to buy high and sell higher. Call me greedy, I don't mind! Both strategies are making me money. I do think however that both strategies are for very different types of stocks, because of the possible risks and rewards.
AIM was originally intended for a basket of blue chip stocks, precisely because of the risks inherent in Scale Trading. The way we use AIM now, you might get saddled with your occasional deep diver, never to recover (at least not until after your retirement). In a basket of blue chips, one deep diver will not matter.
RVS is intended for stocks that might become 10 baggers over the nex few years; much more speculative. A big basket of such stocks gives you a greater chance that one of your stocks might make it to that exalted status. In a basket of speculative stocks, one big winner will make the bulk of your profits.
Regards,
Qarel (as there is another Karel on this board)
Hi Aimster, In a bear market I would think it possible to lose a lot of money in repeated losses, stop-loss protected though they may seem to be.
From your link http://www.investopedia.com/university/fiveminute/fiveminute9.asp
Trading Rule #4: When you've been forced out of a stock position (by applying trading Rule #2), do not reinvest the proceeds of that sale into another stock until the Standard and Poor's 500 stock index (commonly referred to as the S&P 500) makes a new 52-week high.
Regards,
Karel
Hello aaCharley, those that do not gain over 125% ($20 to $45) will be losers ???
If all get stopped out, yes they are losers, but what if the stocks are happily bouncing around between $20.01 and $44.99? The return could be anything between -17% and +88%. With a stock bouncing around between $13.34 and $29.99, the return could be anything between -33% and +50%.
Regards,
Karel
Glett's proposition also assumes a blind dedication to the one falling security
This is a bit ironic, as it is exactly the opposite of what he is advocating. This is Scale Trading, which can be absolutely disastrous with stocks, and really seems to be intended for commodities. For Reverse Scale Trading see:
http://invest-faq.com/fiveminute/
Regards,
Karel
Hi LC, on Reverse Scaling: it is really a very nice idea, and for stocks in an extended updraft a very much better idea than AIM. I always find it a pity when people ask me to be surprised at the results of some calculations I should perform. I have already done those calculations ages ago, and was pleasantly surprised then. Perhaps you meant that? To be more specific, Glett proposes to enter a position in a stock you have selected, and then to add the same amount every time the stocks gets 50% over the last buy point. The stop loss is 33% under the last buy point. Suppose you enter at $20:
$20.00 add $1000 - if stopped out at $13.33 - return -33%
$30.00 add $1000 - if stopped out at $20.00 - return -17%
$45.00 add $1000 - if stopped out at $30.00 - return +6%
$67.50 add $1000 - if stopped out at $45.00 - return +35%
$101.25 add $1000 - if stopped out at $67.50 - return +75%
$151.88 add $1000 - if stopped out at $101.25 - return +129%
$227.81 add $1000 - if stopped out at $151.88 - return +207%
We now have a 10 bagger, so let's stop here. Actually, I see no problems here, considering thast these are worst case scenarios. Of course the returns get dragged down by adding at higher levels, but this only applies to the % return, the $ returns will be boosted.
You also attack his margin scheme, but Glett is careful to point out that his is actually a very safe system, where it is completely impossible to ever get a margin call. And the returns will be a lot higher on margin. From the $151.88 level onward they outstrip the buy and hold return.
And Glett also mentions that you could use his system just to adjust a stop and never add money.
And in case you want to point out that the chance of a 10 (or even 5) bagger is small: Glett advocates to pick your stocks carefully, and to pick a basket of 5 stocks as absolute minimum, but preferably 10. One big winner will be nice enough.
Regards,
Karel
<ot>From the article you posted earlier, that ship is mv Fairlane, see
http://www.jumboship.nl/website_groot/fleet.htm
I like those ships :)
Regards,
Qarel
Grabber, Is this heretical?
Yes, I think it is heretical to tinker too much with PC. But don't let that stop you!! PC is a kind of anchor for the portfolio, the value you want to have at risk. Lichello only saw PC going up. In case you need to adjust PC downward, you did something wrong...
Regards,
Qarel
Hi Grabber, how I got an imbalance in the shares, while you were so careful to buy and sell equal amounts (total)? Easy, because I balanced $$$, not shares. Buys are generally with cheaper shares, sells with more expensive ones, so when you buy and sell the same number of shares and balance dollars, you end up with some shares sold left; indeed your profit.
The reason I did this was because of earlier posts, where a Minimum Buy/Sell amount was used, and the difference in shares was used to update PC. When, in your example with varying Buy and Sell $$$, you balance shares, there is no difference in shares to use for a PC update, so I tried to generalize the procedure. (BTW, there could be another option for the PC update when you balance shares, but I wouldn't know what.)
But when, for your spreadsheet, you just use those minimum $$$ amounts again, you could forget about my generalization.
Regards,
Qarel
Hello Grabber, I don't think you have defined the problem precisely enough. You don't need to balance shares, but to balance dollars, and to calculate the difference in shares. From your example
1) bgt 500 shares @ 5.75 - bgt $2875/500/5.75
2) sld 185 shares @ 6.40 - sld $1184/185. $1184=206@5.75; add to PC (206-185)*5.75; unbalanced: bgt $1691/294/5.75 note: the number of shares left unbalanced reflects the $$$ sold, not the number of shares sold!
3) bgt 170 shares @ 5.00 - bgt $850/170/5 + $1691/294/5.75
4) sld 185 shares @ 7.15 - sld $1323/185. $1323=850 (170@5) + 473 (82@5.75); add to PC (170+82-185) shares * [((170*5)+(82*5.75))/(170+82)]; unbalanced: bgt $1219/212/5.75 [between square brackets: average price calculation]
5) bgt 385 sgares @ 5.50 - bgt $2118/385/5.5 + $1219/212/5.75
6) bgt 319 shares @ 4.75 - bgt $1525/319/4.75 + $2118/385/5.5 + $1219/212/5.75
7) sld 233 shares @ 6.26 - sld $1459/233. $1459=307@4.75; add to PC (307-233)*4.75; unbalanced bgt $57/12 + $2118/385/5.5 + $1219/212/5.75
8) sld 771 shares @ 8.00 - Funny boy! sld 6168/771, but there are only 609 shares left unbalanced, for $3394 total. $3394 is 424 shares @ 8, so you add to PC (609-424)*[((12*4.75)+(385*5.50)+(212*5.75))/(609)]; unbalanced: sld $2776/347/8
In step 8, the amount sold straddles three lots bought, with some left over to be balanced against future buys! Do yourself a favor and go for a percentage approximation! Please!! I cry for you when I see this kind of thing.
Qarel@BrokenheartedInNijmegen.com
A dynamic LiFo stack? You were doing that already with your grid, I suppose (at each sell, shift previous values and insert new price). You could do it all in one cell/column by converting prices to text and concatenating them with a separator character. (like $!) With each sell: convert price to text, append '$', put before existing stack/string-with-prices. With each buy, extract first price text, convert to numeric, and shorten stack. Check for maximum string length in Excel (is there one?)
Regards,
Karel
Hi Grabber, good luck on your quest for mathematical exactness. I am more a kludge kind of guy. Well, sometimes. What about calculating, with fractional shares and prices in a zillion decimals, the net gain in shares after a Buy-Sell cycle for a certain Safe - Min Transaction Amount setting and then reducing the dollar gain to a percentage, to add after every buy? (Or to split over buys and sells, or ...) I can't imagine a stock to bounce around indefinitely in a trading range anyway ... See also my #msg-1435555.
Just an idea to keep your spreadsheets manageable. (And of course you could try to automate the percentage setting!)
Regards,
Karel
Hi QP, very interesting! It doesn't look like AIM to me, more a Constant Dollar Plan where the $$$ are not constant, but are slowly raised by a fixed percentage. This repairs a problem of the CDP, where share value always remains around the same level and all profits you take get dumped on one big heap. I threw it through the Lichello hoop, errm cycle, and found at 3,2% per month (their 10%/quarter) a final amount (after 7.5 year) of $ 182.621. Not quite a million, but not bad at all! Average Annualized Return = 46%
Regards,
Karel
Conrad, If you set SAFE = 0 and PC-update factor= 0 then the creep woll be gone. Right?
I don't think so! Remember that a minimum transaction amount will also work a bit like SAFE. The way you implement your tranactions is also important. One option is to find the PC Update that keeps PC/N constant after every buy/sell cycle, for a certain SAFE and Minimum Transaction Amount. Another option is to make your MTA's asymmetrical to balance your SAFE and PC Update settings, as has been proposed already.
It might work in Vortex, when you use the right multipliers for buys and sells.
Regards,
Qarel
Hi Conrad, the problem is also known by the name 'bracket creep', and that is virtally gone, see the succesive sell-buy levels (last column is portfolio value when the price returns to 10, starting at 10000+5000):
11.67 - 9.02 - 15071.81
11.67 - 9.01 - 15197.52
11.67 - 9.00 - 15329.10
11.65 - 9.00 - 15461.35
11.64 - 8.99 - 15593.15
11.63 - 8.99 - 15727.72
11.63 - 8.98 - 15862.29
11.61 - 8.96 - 15997.55
11.59 - 8.96 - 16138.35
11.59 - 8.95 - 16278.11
As 50% moves the bracket upward and my 24% moves it very slowly downward, 24% is just a little bit on the low side for 'stationary brackets'.
I don't like constant minimum trades in the context of GTC orders for AIM. This will make the bracket contract as PC and PV gain. That is why I choose a percentage of PC. Of course, in setting this % you observe points like commissions etcetera. Because in AIM PC can only grow, after that it is no longer a problem.
Regards,
Karel
Hi Steve! So you wrote what you want, but I am afraid you are not going to get it. Some things are just irreconcilable. Take for instance this: I think I have found a way to keep AIM from dying in a Min Buy-Min Sell-Min Buy-Min Sell sequence (Safe 10%, Min amount 5% of PC). Just add 24% of the buy amount, instead of 50%, to PC (and calculate the minimum amount to buy or sell relaitive to PC, not to Share Value). The 24% is an approximation, and would change with a different Safe and Minimum amount.
Now this works, but it is optimized for the Min Buy-Min Sell-Min Buy-Min Sell sequence. When you throw this in Lichello's cycle, it underperforms tremendously.
Regards,
Karel
Conrad:
SV1=PC1= 10000: P= 100; N= 100; Safe= S (Example S=500 Fixed Amount. The same for Buy and Sell). This must be so in order to get symmetry on the first Buy/Sell Options from the PC=SV start position. Resistance =R = 0,1
One of the exasperating things, considering your interesting ideas, is the way you redefine Lichello's terminology. Steve agreed that 'this is Lichello' but this isn't! Safe never is a fixed amount, it is what you call 'resistance'. So we'll keep in mind that your R is Lichello's Safe. Your S is the minimum Buy amount, I think, which you correctly refuse to put at a percentage of SV (although you also could use split minimums). Then you give a buy amount formula:
Buy Amount = { PC1-SV1( 1-R) -S}
BA=10000 - 9000 - 500 = 500
A 10% drop with a .1/10% Safe/Resistance triggers a buy? No way! The Lichello formula is:
Buy Amount = PC1-SV1( 1 + R) !!! Plus, not minus
BA=10000 - (9000+900) = 100
You subtract Share Value plus Safe * SV from PC, or, as Lichello puts it: first you subtract Share Value from Portfolio Control, and then you subtract Safe * SV from the remainder. And you buy when BA is above a certain amount, I suppose Conrad's S. Which at 500 would prohibit a buy.
Now you can redo your work, Conrad! Or show me what I missed!
Regards,
Karel
Hi Steve, resetting PC is one option, but in your case I think it would in effect be another addition to PC. So, assuming a stock is bouncing around a little bit in a restricted range, it would push the sell point even faster out of that range. Another possibility is to lower the minimum % sell size and/or the addition to PC (not half the buy size but (a lot) less).
And of course you could do absolutely nothing. Sometimes the Lichello algorithm might look just a little bit like a Rube Goldberg contraption, but as long as it is working, who cares? Don't let things like symmetry bug you too much!
Regards,
Qarel
Hi Steve, on cyclic reduction and creeping brackets: the reduction will be one cause of the creeping brackets. Portfolio Control will keep a portfolio about the same value, and allow it to grow. In combination with 'cyclic reduction' (=you get less and less shares when you buy and sell the same %), this makes for 'upward creeping brackets'. Same Share Value, less shares! I would guess that the brackets stop creeping upward when after a buy and a sell you have enough extra shares to compensate for the addition to PC. The ratio of the number of shares to PC after a buy/sell-cycle should remain constant. Let's say you have 1000 shares @ 10 and buy 100 @ 8.33. PC is now 10417. After your next sell, you would want to keep 1041/1042 shares, so you could only sell 5.3%. Or you could sell a little more (or less) to see the brackets creep upward (or downward). Just an idea, I didn't test it.
Regards,
Qarel
Hi Conrad, you complain about Steve's prices showing no apparent structure. I took Ch 6 from Mr.L's book (4th ed.), did the math exactly as he proposes there, and find a buy and subsequent sell size of exactly 10% of share value at those prices. So Steve has got it exactly right, and those prices are the prices where the first minimum buy and subsequent minimum sell occur. As Steve is looking at the behavior of AIM at subsequent minimum buys and sells, that is all the structure he needs!
I also 'reverse engineered' your 'trading on the 10% price differences' and found you traded at 10, 9 (-10%), 9.90 (+10%), 8.91 (-10%), ... , 9.044 (+10%). This doesn't look like AIM to me!
Regards,
Qarel
Well, what I meant was: with a buy, we add 50% of the buy size to PC. I suppose the problem goes away when you add 0%. Now if you reduce the addition by the 2.5%, you still get 47.5%, and that won't work. (Or did I get you wrong?) You'll need very small additions, like my 2.5%, or nothing. At least, that's my idea.
Regards,
Qarel
We need a Universal AIM Algorithm. One that adjusts PC with respect to the size of the transaction.
Well, I don't know if we do need a UAA, but I have also noticed that all AIM action tends to die (or demands steadily rising prices) with alternating minimum buys and sells. The 'culprit' is the PC addition of course (it can't be my GTC orders, please pretty please!), so PC has to grow a lot less, perhaps not at all. So I propose in the context of this discussion to use a PCAF of (transaction size as % of Stock Value/PC/Total Value; your choice) * 50%, just for starters. For a 5% transaction, this becomes 5% of 50%, or 2.5% of the buy as addition to PC. You could top out at 50%. The additions to PC become rather small, however, which might bite you with other kinds of price action than alternating minimum buys and sells. Since those additions need to be really, really small for small transactions, you might try to scale the addition from 0 to 50% of the buy size for transaction sizes from 5% to 50%.
I leave the formulas to you and I really don't know if I would like to call this UAA! And with those tiny additions, AIM almost becomes a Constant Dollar plan (=no change to PC).
Regards,
Qarel
Hi Conrad, you are right, of course. It was about the ratio ...
Regards,
Qarel
Hi AIMster, on rebalancing you have had replies on the lines of:
- in one account, PC doesn't change;
- in a split account, reset all PC's to the share value; or:
- add/subtract 100% of the added/subtracted share value to each PC.
Since you mentioned PC's (plural), I assume you are talking about a split account (each fund its own PC). Now when you have AIMed these funds for a while, share value and portfolio control will differ. Resetting the PC’s, or adding/subtracting 100% of the added/subtracted share value, will change the relation (ratio!) between PC and share value. Those two options still are a good idea, but a third option is to change PC by (New fund value - Old fund value) * PC. For the first fund (4300 > 5300) this would mean multiplying its PC by about 1.23. This would keep your next buys or sells in about the same place, relative to the current price of each fund. For what it's worth!
Regards,
Karel