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Since these types of companies tend to be incorporated (or the non-North American equivalents), the law views a company as a separate legal entity -- in effect it's a pseudo person.
So if you have an incorporated company, you've just created a new entity (in the eyes of the law). This is no different from you creating a mom and pop private company (in which case you are responsible for the company's debts and obligations).
In the incorporated company's case, however, you are generally not responsible for its debts (although directors and senior officials might be held accountable, but that's another issue). That company, acting as a legal entity, is solely responsible.
Therefore if the company repurchases all its outstanding shares, it now owns 100% of itself. However it is controlled by a board of directors. This board of directors can be thought of as making up the brain of the company (just as you are the brain of your mom and pop company) and is responsible for its decisions.
So if the company wants to liquidate, its brain will make the decision on where the funds end up (most likely in each of the individual brains' pockets just as you would make the decision as to where the funds end up if you sold your mom and pop company.
I now see what you're getting at.
However I don't see this as an advantage. In your example...
B&H - 200 - 400 - 800 - 1600 - 3200 - 6400
AIM - 250 - 500 - 1000 - 2000 - 4000 - 8000
You'll note that although the absolute number of shares increases for the B&Her, the ratio of B&H shares to AIM shares is constant (i.e. 1.25).
Since you're assuming AIM started with 1.25 times the B&Hers shares, to begin with, it's obvious that AIM's equity value will be more (1.25 times more to be exact). AIM will always have 1.25 times the value of B&H (assuming no subsequent purchases or sales). So the number of shares doesn't have anything to do with it.
AIM would still be ahead (1.25 times) if the shares never split and B&H remained with 200 shares and AIM remained with 250 shares. It would also be 1.25 times ahead if a 1000 to 1 split was done and AIM had 250000 shares while B&H had 200000 shares.
As a theoretical exercise, if we disregard my explanation above and simply concentrate on number of shares, it's quite possible that AIM would not have more shares than B&H when splits occur -- either because it has not yet had a chance to build its inventory or it's been selling shares as the price rose.
So even if the compounding effect of splits on number of shares is all we're looking at, there are no distinct AIM advantages. The splits could just as easily work to increase the number of B&H held shares relative to AIM held shares (if the split occurs when B&H happens to have more shares than AIM).
No, I guess I don't see what you mean.
If, for example, the AIMer had 225 shares and the B&Her had 200 shares (pre-split) and each share was, say, $46 then the B&Her would have $9200 and the AIMer would have $10350 in equity.
Post split the AIMer would have 450 shares and the B&Her would have 400 shares but the stock price is now $23. So each would have the same amount of equity ($10350 and $9200 respectively).
While it's true that the AIMer would now have 50 more shares than the B&Her (rather than just 25 more shares pre-split), each share would be worth half as much. Therefore I don't see how that enters into the AIM equation. The AIMer could have 1000 more shares, but if each share declines proportionally, it wouldn't matter to AIM.
Are you saying that you think the increase in the number of shares the AIMer holds because of the split might somehow be an advantage?
Hi takr,
"I'm wondering with the split how much of an advantage the AIMer had when the stock they held doubled."
The AIMer would have no advantage over the B&Her because although the number of shares doubled, the price was halved. Therefore the equity value was effectively the same.
Since AIM works on equity value (not number of shares) the split would theoretically have no effect on an AIM portfolio.
Hello JC,
Send me your email address (send it to mhing@automaticinvestor.com) and I'll reply privately.
You can print the user's guide by bringing up the guide (it's a PDF file) and then selecting the Print option on the File menu.
If you don't know how to read PDF files, I can send you the details once I have your email address.
For those that aren't aware, there are some investment articles at the Automatic Investor site --> http://www.automaticinvestor.com/feature.html
Hi Steve,
I thought I read somewhere that someone (Tom perhaps?) had tried obtaining the infomercial through the publisher, but it didn't work out. The family angle might work though.
I remember reading a very early edition of Lichello's AIM book many, many years ago at my parents' house and thinking it was a great investment system and would be easy to convert to a computer program (I then promptly forgot about it until many years later when I happened across the stocksystem guys' AIM spreadsheet, found Tom's site, went out and bought the 3rd edition and started writing Automatic Investor).
I've since searched through numerous boxes when I visit my parents trying to find that edition, I read so long ago, without success.
So I might as well add to my want list of Lichello memorabilia. If anyone has a first edition Lichello AIM book and wants to sell it, I'll buy it from you.
Regarding LD-AIM, I did receive it but haven't had a chance to look at it yet. I have a list of things to look at including LD-AIM, Qarel's question about increasing PC on SELLs rather than buys and a couple of interesting things Don Carlson has been working on.
Unfortunately I've been out of town quite a bit lately (just got back from Boulder, Colorado and will be heading out to San Diego soon), not to mention I'm trying to add an automated asset allocation module to Automatic Investor.
However I do plan to get around to everything and send my comments to the appropriate people. I find it hard to believe how many good ideas people continue to come up with after I think, "well this has to be about it." ;0)
Hi J,
I have been looking for a copy of Lichello's infomercial and his original TV package for about 6 months now. I usually check for it on ebay.
So far no luck, however there is a copy of his Super Power Investing (1st edition) book currently for sale (http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=2707941272&category=1120 ).
BTW, if anyone has Lichello's infomercial AIM package (originals only), please let me know. I'd be happy to purchase it.
Hello Bucky,
If you're looking for ACTION then it's better to AIM individual stocks with relatively higher volatility than it is to AIM indexes. In addition, AIMing each stock in a separate AIM portfolio is the way to go.
That way you don't run into the situation where price movements cancel each other out and thus negate AIM recommendations.
Finally, daily updates would give you the most action.
Incidently, I've backtested quite a few stocks with daily, weekly and monthly updates and found that the majority of stocks do better with more frequent updates. However some will do better with less frequent updates, but they're in the minority. The best course of action is to run backtests for yourself on your chosen stocks and view the results.
Don Carlson has also come up with MACRO filters that automatically filter inefficient price updates out for you. However this is an AIM modification and not part of standard Lichello AIM.
If you want to automatically run What If? scenarios and perform historical testing without having to manually enter hundreds of price quotes, you can use the Automatic Investor software (http://www.automaticinvestor.com/index.html ).
It retrieves up to 40 years of historical data from the Internet and allows you to automatically run as many backtests as you'd like on any stock and most US mutual funds. In addition you can automatically perform AIM parameter optimizations using the built-in Optimizer.
You can download a free trial to see if you like it from here --> http://www.automaticinvestor.com/trial.html
Once you've downloaded and installed the software, click the HELP button to bring up the User's Guide. In addition to explaining the software's features it will also give you a good overview of how to use AIM in general and provide some basic investment concepts you can use with AIM.
If you have any other questions, feel free to let me (and others) know.
Hi Karel,
Thanks for the explanation. I'll run a few tests as soon as I get back to Canada.
"An addition to PC after a buy brings the next buy closer (and the next sell even farther away)."
Yes, this is correct. I believe Lichello did this because he uses the PC as a loose proxy of the amount of money you use to purchase equities (however he doesn't take into account any money you remove from equities). It's similar to cost calculations for tax purposes, purchases count, however sales don't.
"Of course an addition after a sell does just the opposite: the next sell moves away (but that does look like less of a problem to me). And the buy comes a bit closer (but still has to cross the barrier of at least two Safes)."
I'm not sure what you mean by this statement. The addition after a sell doesn't do the opposite (unless you had something I'm not aware of in mind). Anytime you increase PC (regardless of whether it's after a purchase, sale or an ad hoc increase), the next buy will be closer and the next sale will be further away (all other parameters being held equal). However you state this in the next sentence (i.e. "the next sell moves away... and the buy comes a bit closer...")
Regardless, it will be interesting to see the results of your suggestion.
Regards,
Mark
http://www.automaticinvestor.com
Hi Karel,
I would be interested in doing this, however I don't currently have the time to do a complete test.
I'm in Colorado until the end of the month and once I get back to Canada I'll be working on the asset allocation module for Automatic Investor.
However I will run an initial batch of tests in February to see if your idea works. If it looks promising I'll make some time to run more thorough tests.
BTW, did you come up with this through a logical thought process (such as Matt's MattMod) or did you simply wonder what would happen? Either way, I think the idea is worth a look.
Regards,
Mark
http://www.automaticinvestor.com
If buy and hold is still good for a person not willing to put in the time and effort, I'd be interested to know why you feel AIM isn't -- as far as I can tell you think it's bad because of Enron-like companies. However this is still a problem with the Buy and Hold strategy.
I'm interested in the Darvas method because I use trading strategies for my short-term investments and AIM for my long-term investments. So I'm looking for all sorts of information on various trading methods to be used in conjunction with AIM.
Do you have any historical results available?
Regards,
Mark
http://www.automaticinvestor.com
AIM is a poor trading technique but an excellent long-term investment technique. In most successful trading techniques you buy on strength and sell on weakness.
Investment techniques are the opposite. You buy on weakness and sell on strength (this idea was promoted by no less than Benjamin Graham). Investment techniques also require you study a stock to ensure it has good long-term potential.
Trading techniques don't require good long-term fundamentals because you're in and out in a relatively short time.
In both cases, you should also diversify your holdings to provide better risk protection.
In summary, you can't really compare the Darvas Method (a trading system) with AIM (an investing system). However I don't believe that's what Don was doing. He was simply showing how you could re-interpret an AIM chart to work like the Darvas method.
Regards,
Mark
http://www.automaticinvestor.com
Hi J,
Yes, I think ETFs might be better inputs than individual stocks because they MIGHT be more predictable, but I still think there are better algorithms out there than MPT.
LPM stands for "lower partial moment" and is a measure of downside risk. You can use it in a heuristic algorithm to find very good, if not optimal, portfolio allocations.
You can read more about it here --> http://www.invest-tech.com/Resources/Support%20Resources/A%20brief%20history%20of%20DR.doc (but be warned, this is not a page-turner -- it would probably be best to read it while you're wide awake).
Regards,
Mark
http://www.automaticinvestor.com
Hi Takr,
I've never heard that quote from Buffet.
However the problem is that we can never be sure we have a good company. If we were sure that our pick would be guaranteed to go up (and go up more than any other pick), then we wouldn't need to diversify.
However that's not a realistic assumption. Therefore diversification helps spread the risk we take when investing in the stock market. So rather than being a stupid idea, I think it's a wise idea -- as long as you diversify correctly.
In fact there are numerous studies you can find on the Internet that show proper diversification will increase returns and decrease risk (even if some of your picks decline) compared with simply picking what you believe to be a good company.
The inventor of Modern Portfolio Theory even won a Nobel prize for this insight.
"I think what AIM needs is a 'Get out of this stock NOW it's a loser' safety net."
Although there is no automated, built in mechanism for this, you can do it by simply selling all your loser shares and then buying shares in some non-Loser stock. As long as the AIM portfolio's equity value remains unchanged, AIM will simply carry on without missing a beat.
Regards,
Mark
http://www.automaticinvestor.com
Hi Steve,
I had seen the discussion on LD-AIM and was interested in looking at it further, however I was "busy" this past weekend.
I do intend to look at it in greater detail in the next little while. I agree with your goals of using diversification to reduce risk. I think that's the next logical step for AIMers (although I'm sure many already do this, it would be nice to have a systematic way of doing it).
Benjamin Graham suggested 10 to 30 stocks as the ideal number for proper diversification. Of course they had to be the correct stocks (30 B2B Internet stocks wouldn't do it).
I tend to agree with his numbers although I think 30 might be a little on the high side. When starting out (hopefully at a young age), we are necessarily stuck with less than 10 stocks because most young people don't have enough investment funds to properly diversify. However some of that risk is mitigated by the fact we're young and have many income producing years ahead of us.
As we get older (and investment funds increase), diversifying into more stocks and sectors should always be done. By the time we're ready to retire, I think we should have somewhere between 20 and 30 properly chosen stocks.
In addition, we should also have other types of investments such as real estate, cash, collectibles and such.
I'm looking forward to finding out more about your LD-AIM. If I have any questions I'll send you a note.
Regards,
Mark
http://www.automaticinvestor.com
Hi J,
Interesting that you should bring this up right now. I've been working on something very similar (see http://www.investorshub.com/boards/read_msg.asp?message_id=594335 and http://www.investorshub.com/boards/read_msg.asp?message_id=594354 ).
There's also the MPT article from AIM 2001 at http://www.automaticinvestor.com/articles/mpt.html that might help.
I've found that I'm moving away from the MPT way of optimizing a portfolio because, although it works very well given past data, it doesn't work so well going forward if one of the inputs is even slightly off. In other words, an input that is slightly off can cause a very large deviation in the output (i.e. the optimized portfolio).
To combat this, I've been looking at a heuristic algorithm based on the Lower Partial Movement (LPM).
I am planning to add this to AI 2.0 in the first quarter of this year.
From what I've seen so far I strongly believe that we can reduce risk (and increase returns) by using AIM at the individual stock level (i.e. what I call the micro level) and further reduce risk at the portfolio level (what I call the macro level) by diversifying in a logical manner.
There are many studies (including MPT studies) that show diversification is beneficial in reducing risk. Even ad hoc diversification has a high probability of reducing risk.
However to wring out the greatest benefits, a systematic, logical diversification strategy is required. To date, all such strategies have been based on returns/risk obtained directly from stock prices.
However the strategy I'll be adding to AI 2.0 will be based on returns/risk obtained from AIM managed stocks. This should allow AIMers to create nearly optimized portfolios out of their AIM managed holdings. Note the reason I say "nearly optimized" is because the heuristic algorithm does not guarantee an optimum solution, however its solution is very good and is much more tolerant, than MPT, of inputs being slightly off.
To summarize, I think the concepts discussed in my MPT article (see link above) are still valid, however the actual implementation of how to create the optimized portfolio should be based on something other than MPT.
I'll post more once I have a release date.
Regards,
Mark
http://www.automaticinvestor.com
Hi Irwin,
As far as I'm concerned I have nothing more to say to Myst. I made my points.
I won't post to his board or respond to any questions about anything if they're on his board.
The only time I WILL post is if Myst decides to lie about me again.
I might also reply if he makes false or misleading claims about AIM.
However my plan is to get back to dealing with folks who want to discuss AIM and AIM-related ideas logically.
Regards,
Mark
http://www.automaticinvestor.com
Hi Grandy,
Well AIM is a very easy system to learn and an easier one to use.
If you have any questions just post them here and you'll get lots of answers.
Regards,
Mark
http://www.automaticinvestor.com
Hi Tom,
Well the Dow is down, but everything else appears to be up. Lots of green on my screen today.
I hadn't heard about the GE strike. With Gold, as with all my other investments, I only use individual stocks. I find I do MUCH better that way.
Many years ago, before I found AIM, most of my investments were in mutual funds. I wasn't happy with the performance and I didn't like all the hidden fees. So I sold everything and put it all into individual stocks and have been quite happy ever since. However that's just me, I think mutual funds, index funds and such can be great for other people.
One of these days I'll probably get around to learning more about the oil sector, however to date, I've invested strictly in technology, metals and Canadian banks.
Regards,
Mark
http://www.automaticinvestor.com
Hi Tom,
"Let's hope that discussions can come back toward where they've been ever since I started a BB topic on AIM back TEN years ago."
Yes, I hope so. One of the reasons I like your board is because it consistently doesn't contain hype or unfounded claims, just good solid discussions where I've learned quite a bit from a number of different people.
Alas, as with many things, sometimes things have to get a bit worse before they can get better.
I see the techs are on a bit of a tear today. I hope the markets perform well through January. Most of the time the year has ended up when January has ended up.
With Bush pulling out all stops in order to revive the economy, a relatively low risk IW, and a still significant number of tech shorts out there, I believe 2003 can be a good one. Unfortunately I'm not sure how events surrounding Iraq/N. Korea will affect everything. Still, I have high hopes.
I got back into gold in early December because I believed a war with Iraq was a high probability. I suppose Oil would have been a good choice too, but I don't know that sector very well -- and it seems to me that if a new leadership is installed in Iraq Oil production might be increased. Even if the oil shackles remain on Iraq, I'm sure some OPEC member would love to increase production.
Regards,
Mark
http://www.automaticinvestor.com
Hi Grandy,
No, I'm not that Mark.
Regards,
Mark
http://www.automaticinvestor.com
Hi Bernie,
Myst has all the signs of a bully. If somebody doesn't agree with him he moves focus off of the facts by attacking a person's character and motivation. He twists facts and deftly avoids the tough questions all the while throwing up mountains of gibberish and nothing-talk.
I've seen guys like him before and eventually everyone figures it out. Over the past two days he's shown his true nature and hopefully that will help at least a few people.
He's said he won't post to this thread again so perhaps that's another good thing that came out of this mess. But then again he's said a few things that didn't quite work out.
I truly hope that this time, I'm done with Myst. However if he wants to continue spewing lies and innuendos about me I will be more than happy to respond.
Regards,
Mark
http://www.automaticinvestor.com
Hi Irwin,
It's obvious that Myst either doesn't know how to backtest his system or doesn't want to because he knows it will fail to perform. Either way, trading an untested system is very risky.
I notice he's removed my rebuttals to his outright lies from his board (yet he kept his posts), so apparently I too have joined you in the banned from Myst's board club. However that's a club I'm happy to be a member of because it obviously means I said something right.
I mean why would Myst get so upset over somebody asking about statistically valid backtest data? Every professional trader and trading system designer WILL NOT trade a system without proper backtesting, yet Myst appears to believe his system should be traded without this backtesting. It's like buying a car that wasn't safety tested -- extremely risky.
The fact that he removes valid questions from his board reminds me of those dictator states that have only one state-owned radio station so the masses only hear "approved news."
Anyway, I completely agree with your thoughts on backtesting and think your posts give valuable information to readers -- and, by banning you from his board, that is Myst's loss
Regards,
Mark
http://www.automaticinvestor.com
Hi whitelake,
Myst is the one who brought you into this with his statement,
"Even whitelake has noticed your childish ploy of creating another moniker "lightwaves1" to try and trick readers that someone else supports your views.....how very pathetic. No, I don't have any proof it was you, perhaps it isn't.... but it's a common practice among chat room participants as most everyone knows."
In the past two days I think everyone has seen how Myst twists and creates his own facts in order to support his views. One of the tricks he uses is to take comments from other posters out of context and use them so it looks like they support him.
Others have told him that he's used their comments out of context in the past and I'm sure it will happen in the future too.
From your posts I think you are a solid addition to this board and I'm sorry you were dragged into this mess.
Regards,
Mark
http://www.automaticinvestor.com
Well I was hoping that my dealings with Myst were at an end, however he has sunk to new depths.
Rather than stick to the facts Myst has now accused me of creating a user id (lightwaves1) in order "to try and trick readers that someone else supports your views." Before that he accused me of trying to discredit x-dev.
For all of you folks who are thinking of dealing with Myst, here's what you're getting...
"Even whitelake has noticed your childish ploy of creating another moniker "lightwaves1" to try and trick readers that someone else supports your views.....how very pathetic. No, I don't have any proof it was you, perhaps it isn't.... but it's a common practice among chat room participants as most everyone knows."
Regards,
Mark
http://www.automaticinvestor.com
Since Myst has threatened to remove my posts from his board if I'm not "polite," and since I have no idea what his definition of "polite" is, I've posted my reply to his last message (http://www.investorshub.com/boards/read_msg.asp?message_id=653643 ) here for anyone interested.
I hope this will be the last exchange between Myst and myself (my apologies for disturbing the normally tranquil setting of this board), but the ball is now in Myst's court.
Here's my response...
This all started because I demonstrated that AIM and x-dev are different systems (go reread http://www.investorshub.com/boards/read_msg.asp?message_id=645237 ).
I also requested a justification for some of your claims based on generally accepted testing criteria.
You responded with a “rebuttal” that didn’t refute anything I said (go read http://www.investorshub.com/boards/read_msg.asp?message_id=646774 ).
When I pointed this out (reread http://www.investorshub.com/boards/read_msg.asp?message_id=652759 ) you then responded with a tirade about how I was trying to discredit x-dev because it was taking away business from my software package.
Your modus operandi appears to be the following:
1. Say something about x-dev’s returns being great. If people agree with you, then everything is fine.
2. If somebody disagrees and asks for acceptable details then you respond with a “rebuttal” that really doesn’t refute anything (again see http://www.investorshub.com/boards/read_msg.asp?message_id=652759 ).
3. If that person still pursues it, attack his motivation (such as stating that I’m trying to discredit x-dev for my own purposes) thus deflecting the spotlight from the real issues (e.g. valid tests, different algorithms).
4. Attempt to turn the tables. You were NOT polite to a number of AIM users (not just me, see http://www.investorshub.com/boards/read_msg.asp?message_id=585646 ), however that appears to be okay in your realm. However if somebody questions your views you accuse them of not being polite and threaten to ban them from your board.
Your False/True statements are, again, not based on facts and appear to be aimed at moving the spotlight away from my two basic points.
In reality, no matter what you choose to believe or imply, I was asking for test results to verify your claims. Every major trading system developer believes that valid test results are required before trading a system. This is not my invention. In fact Perry J. Kaufman, one of the most respected trading system designers in the world, says this about testing.
“Testing should be the process of validating your ideas. That first requires that you define those ideas in a clear plan and decide whether it should work for hourly, daily or weekly intervals. If the test results confirm your ideas, then you can have confidence in the strategy... if you indiscriminately test... you have no idea whether you have found a good idea or simply overfit the data.”
The fact that my two points have snowballed into this state leads me to believe that you don’t want to supply the results because either (1) you can’t or (2) you know they’ll show the long-term results/risk in a negative light.
I know that if you could supply these results and they showed x-dev in a positive light I wouldn’t have to ask for them. They’d be posted to boards all over iHub.
I’m not the hostile one Myst. I pointed out two things: (1) x-dev and the AIM algorithm are significantly different and (2) you should have statistically valid test results to support your claims – not simply curve fitted, after the fact, examples. And look at where we’ve ended up.
I stand by ALL my original statements. At this point it is no longer worth my time and effort to beat a dead horse. So as long as you don’t bring me or my software into your future posts on this board I’ll refrain from posting.
Perhaps one day someone will decide to run a proper backtest on x-dev and publish the results. I think it would be very interesting indeed. Until then I sincerely hope that we don’t have the need to speak with one another again.
Regards,
Mark
http://www.automaticinvestor.com
This all started because I demonstrated that AIM and x-dev are different systems (go reread http://www.investorshub.com/boards/read_msg.asp?message_id=645237 ).
I also requested a justification for some of your claims based on generally accepted testing criteria.
You responded with a “rebuttal” that didn’t refute anything I said (go read http://www.investorshub.com/boards/read_msg.asp?message_id=646774 ).
When I pointed this out (reread http://www.investorshub.com/boards/read_msg.asp?message_id=652759 ) you then responded with a tirade about how I was trying to discredit x-dev because it was taking away business from my software package.
Your modus operandi appears to be the following:
1. Say something about x-dev’s returns being great. If people agree with you, then everything is fine.
2. If somebody disagrees and asks for acceptable details then you respond with a “rebuttal” that really doesn’t refute anything (again see http://www.investorshub.com/boards/read_msg.asp?message_id=652759 ).
3. If that person still pursues it, attack his motivation (such as stating that I’m trying to discredit x-dev for my own purposes) thus deflecting the spotlight from the real issues (e.g. valid tests, different algorithms).
4. Attempt to turn the tables. You were NOT polite to a number of AIM users (not just me, see http://www.investorshub.com/boards/read_msg.asp?message_id=585646 ), however that appears to be okay in your realm. However if somebody questions your views you accuse them of not being polite and threaten to ban them from your board.
Your False/True statements are, again, not based on facts and appear to be aimed at moving the spotlight away from my two basic points.
In reality, no matter what you choose to believe or imply, I was asking for test results to verify your claims. Every major trading system developer believes that valid test results are required before trading a system. This is not my invention. In fact Perry J. Kaufman, one of the most respected trading system designers in the world, says this about testing.
“Testing should be the process of validating your ideas. That first requires that you define those ideas in a clear plan and decide whether it should work for hourly, daily or weekly intervals. If the test results confirm your ideas, then you can have confidence in the strategy... if you indiscriminately test... you have no idea whether you have found a good idea or simply overfit the data.”
The fact that my two points have snowballed into this state leads me to believe that you don’t want to supply the results because either (1) you can’t or (2) you know they’ll show the long-term results/risk in a negative light.
I know that if you could supply these results and they showed x-dev in a positive light I wouldn’t have to ask for them. They’d be posted to boards all over iHub.
I’m not the hostile one Myst. I pointed out two things: (1) x-dev and the AIM algorithm are significantly different and (2) you should have statistically valid test results to support your claims – not simply curve fitted, after the fact, examples. And look at where we’ve ended up.
I stand by ALL my original statements. At this point it is no longer worth my time and effort to beat a dead horse. So as long as you don’t bring me or my software into your future posts on this board I’ll refrain from posting.
Perhaps one day someone will decide to run a proper backtest on x-dev and publish the results. I think it would be very interesting indeed. Until then I sincerely hope that we don’t have the need to speak with one another again.
Regards,
Mark
http://www.automaticinvestor.com
Thanks Matt. I was beginning to think I was the only one with this line of thinking -- which is okay with me, however it's nice to see that someone else understands my motives.
Regards,
Mark
http://www.automaticinvestor.com
An open letter to all x-devers.
Since I’m the obvious target of Myst’s post, I’d like to set the record straight.
I entered this debate when someone posted that x-dev could provide 100% annual returns with less risk than standard AIM. Being an AIMer, as well as selling the Automatic Investor AIM software package, I asked for further details.
When Myst entered the thread, he stated certain things that weren’t true, such as AIM and x-dev providing similar trading signals.
I showed that because AIM’s recommendations are based on the Portfolio Control and x-dev doesn’t have a similar structure, that the recommendations could not be similar. In essence I said that AIM and x-dev were not related other than x-dev using the AIM concept of sizing trades.
Now Myst is claiming that because x-dev is available, my comments are based on the fact Automatic Investor is losing business to x-dev and I’m trying to discredit x-dev. This is completely untrue. As I tried to get across to Myst, x-dev is not an Automatic Investor competitor. It doesn’t replace any AIM based software because it uses a different algorithm. Therefore anybody who truly wanted to use AIM would not be using x-dev.
Further, Automatic Investor is not the only AIM software package available. If my true intention was to discredit a software package in order to increase Automatic Investor sales, I certainly wouldn’t be targeting x-dev. Rather I’d set my focus on one of Automatic Investor’s true competitors (of which there are at least 5).
For all these years, the AIM software vendors have had a healthy relationship with one another with no attempts to undermine the others. I have never said anything to discredit any other software package over all these years. So why would I start with x-dev (which isn’t even an Automatic Investor competitor)? Let’s face it, our investment techniques are not in the mainstream. That leaves enough market share for everyone.
My main goal was to demonstrate the differences between AIM and x-dev and to provide Myst with some suggestions on how to go about properly backtesting x-dev. When I started writing investment software I would have been very happy if someone took the time to explain proper testing procedures to me.
My other goal was to try to get Myst to validate some of the claims he was making. It seemed to me that he would say something that sounded outrageous and then sidestep the issue when somebody asked for the underlying data and proof to back up his claims.
If you read my posts you’ll see that I never once tried to discredit x-dev as Myst would have you believe. In fact I stated that I don’t know if the system will work over the long-term because I haven’t seen any historical testing. I also said that I believe the algorithm is a riskier one than AIM because of its trading-like nature. That’s not an attempt to discredit. That’s an analysis of the algorithms.
Yet Myst has implied I called x-dev a useless piece of software. That, again, is untrue. Nowhere in any of my posts have I attacked x-dev (all my posts are there to be read by anyone).
What I have attacked is the hype associated with some of the claims about x-dev’s returns. This is because I believe that if you claim stratospheric annual returns, you should provide statistically valid data to support this claim.
I also believe that a good debate uncovers flaws in investment methods and many times leads to solutions that make better software products.
In addition I’ve attacked comments such as "Heck Martha, those results were from daily updates! You can take that extra 100% return and stick it where the sun don't shine if'n you spect me to get up before noon and check the dang stock everyday! In about 15 years we'll make up that 100% difference anyway, and no young whipper snapper is gonna tell me any different!,” which Myst posted at http://www.investorshub.com/boards/read_msg.asp?message_id=585646
I don’t believe such comments have any place in an intelligent discussion based on facts and logic.
Unfortunately I now find Myst telling you that I’m trying to discredit x-dev. He’s turned the focus away from my true motive, which is to obtain facts about how his claims of increased returns and lower risk can be achieved with x-dev, to one where he’s claiming my ultimate motive is to sell more Automatic Investor software packages at x-dev’s expense.
That’s sad on a number of different levels. Foremost is that it stifles debate and hides it behind unverified hype. If you read my posts you will see that I have made statements based on facts and have disputed some of the things Myst said based on facts. Myst has made statements based on his opinions, without the facts to back them up, and he has done so again in the post to which this letter is a response.
However I’ve expended about as much time and effort on this topic as it warrants. I’ll continue to ask for supporting data whenever anyone (not just Myst) makes a claim that I can’t validate. If that brings wrath, rather than supporting data, down upon me then I suppose that’s life.
If you’ve read this far, thanks for taking the time. I’m not interested in debating anything about x-dev with anyone on this board, however when somebody posts false or misleading statements about me I feel compelled to respond.
Regards,
Mark
http://www.automaticinvestor.com
Hi Whitelake,
Reread my post and you'll see that it's filled with logic and facts -- unlike the post to which I was responding.
I think I prefer "thinly veiled ridicule"
I don't. I prefer people to say what they mean and mean what they say rather than playing games, using veiled insults and attacking others with baseless rhetoric.
Regards,
Mark
http://www.automaticinvestor.com
Rebuttal? What Rebuttal?
Myst wrote,
"...x-dev generates its signals based on a moving average of an equity's price."
Not entirely accurate. X_DEV generates it's [sic] signals based on the deviation of price from a 12 day simple moving average of price midpoints.
(1) What's "not entirely accurate" about this statement? The fact that the signal is based on the deviation of price from a moving average, means that it IS based on that moving average.
It's as if I said a house was built on a foundation and you replied that the statement was “not entirely accurate” because the house was built on a concrete foundation 12 inches deep. That doesn’t refute the fact that the house was built on a foundation.
Your statement just serves to reinforce what I wrote, however you word it to sound like it’s refuting what I said. Perhaps you should take your own advice and “If you look close...that's right, press your nose to the screen...” you will see that your statement corroborates, rather than refutes, mine.
But that doesn’t seem to be your style. Why let simple little things such as logic and facts get in the way of hyperbole?
"...There is absolutely no unique portfolio history recorded so a "running total" does not exist.
Not so. The portfolio value is an integral component of the algorithm.
(2) Again, “If you look close...that's right, press your nose to the screen...” you will see that I didn’t say the portfolio value doesn’t form an integral component of the algorithm. Rather I said that x-dev doesn’t have a running total (i.e. a portfolio control). And, as you full well know, it doesn’t.
"...Therefore recommendations are given based on price alone. Only when a recommendation event occurs does the portfolio value come into play -- and it is used solely to size the trade. It doesn't take part in triggering the recommendation event."
Again not entirely accurate. The recommendations are indeed given based on the deviation of price....but.....successful recommendations increase the portfolio value. As you have noted, trades are sized based on the portfolio value, so the PV does come into play. As the PV grows the recommendation sizes also grow.
(3) And yet again, “If you look close...that's right, press your nose to the screen...” you’ll notice that I said that Portfolio Value “does come into play.” However it is not taken into account when triggering a recommendation event -- as the equity value is with AIM.
You’ve managed to restate exactly what I said but preface it with, “Again not entirely accurate” in order to make it appear that you’re refuting what I wrote all the while choosing to ignore what I actually said.
Maybe you’re not aware of the meaning of the word “rebuttal.” In my Oxford dictionary it’s defined as, “refute, disprove by argument. Prove falsity or error of. To present opposing evidence or arguments.”
As you can see, your arguments don’t meet any of these definitions – perhaps the word you were looking for was “concur.”
So let’s pause a moment to see what we’ve got (and to give you a chance to clean your screen – I mean that much nose pressing has got to leave smudges).
1. You’ve not actually refuted anything I’ve said. What you have done is confirmed what I wrote but did it in such a way so it appears to the casual reader that you actually had some sort of logical rebuttal.
2. In all three cases, listed above, you’ve managed to say absolutely nothing new – yet it took you 151 words to say it. Perhaps you like to hear yourself speak?
Okay, now that you have a clean screen, let’s continue.
“ Everything is more inter-related than you suggest. Though I think you already know this.”
Nope, everything is NOT inter-related and I certainly know they’re not. Why? Go back and reread my original post and you’ll see why. In fact that’s why I wrote that original post.
x-dev has no Portfolio Control nor does it have anything resembling a Portfolio Control. Portfolio Control is an extremely important component in AIM’s recommendations. Therefore x-dev cannot give similar signals to AIM – no matter what contrived, cherry picked examples you choose to parade in “support” of your “logic” (and I use that term very loosely). Go ahead and reread my original post. I’ll wait.
Back? Good, now that you know what I really said (although somehow I get the feeling that you already knew), you’ll notice that I made one simple point. A point so simple that I believe that the same dart throwing monkey, made famous in all those stock books, could understand it – and yet that simple point appears to have eluded you.
My point was “to show that x-dev is not an AIM derivative -- but a new system altogether.” That’s it. And, your so called "rebuttal" (devoid of any logic or facts), not withstanding, hasn’t refuted any of it. Probably because you know what I wrote is true – and if you don’t, certainly everyone else who’s read it does.
Note that I didn’t say anything about the relative merits of the two systems. However since you’ve brought up the subject I will say that x-dev is a significantly riskier algorithm than AIM, ceteris paribus, because it is a short-term trading strategy rather than a long-term investment strategy.
And it’s based on a Simple Moving Average nonetheless. In essence what you’re saying is that deviations from a 12-day SMA can successfully, and consistently, generate profitable short-term trading signals. And you’re saying those deviations can correctly size a trade (based on what logic?).
You’re further saying that a 12-day SMA carries enough information to consistently work and decrease risk below AIM levels. And, best of all, you don’t need to back this up with proper testing or data. Folks should just take your word for it. Forget about all the other TA indicators out there, a 12-day SMA is the ultimate solution. Wow! Why didn’t I think of that.
Now if we distill everything you’ve said (and eliminate the abundant rhetoric and nattering), what have we got?
Here’s a list:
1. You’ve come to an AIM board (that’s right, this is a board devoted to the AIM method of investing) with a system that is not even closely related to AIM (uh, uh, uh, before you post another “rebuttal,” press your nose to the screen and re-read (1), (2) and (3) above). You’ve claimed this system is related to AIM (on one hand), but is much better (on the other hand) because, in part, it “doesn't need no stinkin ‘portfolio control’” (and apparently doesn’t need no stinkin’ historical tests either).
Now most people who understand AIM and the Portfolio Control would see a blatant contradiction in these two statements, but apparently not you.
Here’s what I think. You play up the AIM connection because you feel there’s a very large AIM market that you can tap if only you can convince people that x-dev is an AIM derivative. Rest assured that x-dev is NOT an AIM derivative. It is a completely new system (and a trading system at that).
2. You’ve taken every opportunity to denigrate AIM and tout x-dev with ABSOLUTELY NO FACTS to back you up.
What you claim to be facts are highly optimized examples designed to show x-dev in the best possible light. And some of your examples are optimized after the fact. Anybody can optimize any system after the fact and cherry pick a few examples to show that system outperforms any other system.
The real proof is, as I’ve said in previous posts, “press your nose…” (well, you know the drill) to test your system over a wide variety of market conditions using statistically-sound blind tests.
I even gave you step-by-step instructions on how to do this in hopes that you’d come back with some meaningful results. Rather you’ve completely ignored this method of testing and chosen instead to spout thinly veiled ridicule at anyone who’s not agreed with what you've said – or anyone who has asked for real proof.
3. You’ve insulted a number of AIMers on this board because they “dared” to question your results.
4. You’ve injected hype, the likes of which I’ve only seen in SPAM email, into a board that was once exclusively the domain of factual discussion and idea exchange. And for what? To sell a piece of software.
You obviously must think AIMers are stupid. Why else would you come to an AIM board, tell AIMers their system sucks compared to your new system (based on a 12 day SMA no less) and then insult long-term AIMers who ask you to validate your claims with facts? Just so you know, AIMers are not stupid, just overwhelmingly polite.
AIM has been properly back-tested for years and people have actually used it to make substantial profits over long periods of time. x-dev? No back tests, no long-term results and it has been in existence for a whopping 7 months. The only “proof” you appear to come up with are outrageous claims that remind me of snake-oil salesmen selling their special cure-all remedies (but at least they had the intelligence to leave town when the facts came out).
In the future try to back up your claims with PROPER tests and data. Refrain from making up “facts” and at least try to provide some value to the AIM board.
“ Happy New Year!”
And a Happy, and smudge free, New Year to you too!
Regards,
Mark
http://www.automaticinvestor.com
Hi Devron,
I am, living on Vancouver Island in beautiful British Columbia.
Regards,
Mark
http://www.automaticinvestor.com
I've used TD Canada Trust (it used to be called TD then TD Waterhouse up here in Canada) for many years. I don't believe they have a minimum dollar value and the usual commission is $29 if you trade via the Internet.
I also use CIBC Investor's Edge (again, no minimum and a $28 commission).
Regards,
Mark
http://www.automaticinvestor.com
Hi Conrad,
2% t-bills also make money grow so are they the same as AIM?
Regards,
Mark
http://www.automaticinvestor.com
My original post was to inquire about the facts behind a claim of using x-dev to obtain 100% a year gains with less risk than Standard AIM.
I certainly didn't expect to delve this deeply into the AIM/x-dev thing, however your post has peaked my interest. So here are some comments on your post...
AIM generates its signals based on the Portfolio Control (which when a portfolio is first set up is equal to the initial investment in equity, but then increases based on the value of subsequent purchases). This can be thought of as a "running total" or a proxy of the amount you've invested in equity (note that this is not a one to one relationship as sales are not taken into account and only 50% of purchases are recorded).
This means that AIM's recommendations are based loosely on the amount of money you have invested in the market. The current equity value is compared to this "running total," so to speak, in order to generate recommendations. This results in its recommendations being based on two things: running total and price.
x-dev generates its signals based on a moving average of an equity's price. There is absolutely no unique portfolio history recorded so a "running total" does not exist. Therefore recommendations are given based on price alone. Only when a recommendation event occurs does the portfolio value come into play -- and it is used solely to size the trade. It doesn't take part in triggering the recommendation event.
"The only difference is the way the buys and sells are 'sized' as Aptus would put it. "
As noted above, this statement is incorrect because there are two differences: the first is in the way a recommendation event is triggered (i.e. based on running total and price for AIM compared with just price for x-dev).
This is a significant difference (if you don't believe me try changing your Portfolio Control value by a large amount, leaving price history unchanged, and note the vastly different recommendations).
The second difference is, as you say, the way trades are sized. This is also a significant difference because AIM sizes trades based, again, on the running total (i.e. Portfolio Control) while x-dev doesn't.
"In most cases AIM signals and X_DEV signals are the same (and I have the spreadsheets to prove it)."
Based on the two significant differences, mentioned above, I'd be quite surprised if AIM signals and x-dev signals were the same in most cases. Even if we ignore the fact that x-dev signals are shorter-term in nature while the AIM signals' term is longer, the fact that a recommendation event is triggered by such different underlying conditions leads me to believe that in most cases the signals cannot be the same. It just doesn't make sense.
If the signals were the same, then that would imply the Portfolio Control value is strongly correlated with the equity's price.
However we know this isn't the case because, as we've seen in the past two years, many deep divers have relatively low prices, yet their portfolio's Portfolio Control remains relatively high (whereas their moving average declines).
"AIM BTB can not alter its sizes and assumes 'one size fits all'"
Again, this statement is not correct. Lichello states that you can vary the minimum amount you'd like to trade (and actually changes it from 5% to 10% in the 4th edition of his book), so in effect you can alter the trade size.
In addition, today, most AIMers also use Tom Veale's invention of an adjustable split-SAFE. Some choose to keep the 10/10 SAFE values while others use different values. So you can definitely size the trade according to your wishes -- this is not an x-dev specific innovation.
"I feel the AIM derivatives are like people.........not better or worse, just different."
I disagree with this statement. Leaving the people out of the equation there are definitely some AIM derivatives that ARE worse than others (and I've tested quite a few of them).
That's why it's important to properly test a method before using it. And proper testing does not mean finding a few good results and trumpeting them. Rather it means following a statistically valid testing method that encompasses a wide variety of market conditions and includes a large enough sample of data. Even so there is no guarantee that the method will work in the future, but at least it inspires some confidence.
Five years ago a great investment method was to buy any new Internet IPO and sell it 2 weeks later. You could make a ton of money doing this, however you could hardly call it a good system to make money over the long-term -- as many "investors" found out the hard way. And that's a good example of why robust testing is not a luxury, but a necessity.
"AIM BTB can be called a mechanical system, but as soon as you alter it, doesn't it become a trading tool?"
No, it doesn't. A mechanical system is any system based on a set of well defined rules. The inputs are usually things out of your control (such as price and volume). You also usually have "knobs" that you can use to tune the system in some way before you start it.
The "mechanical" part comes from the fact that once you've started it you rarely have to fiddle with the knobs. If you start fiddling with the knobs based on non-mechanical inputs (such as emotion), then the system is no longer a mechanical one.
In addition you can have mechanical investment systems (such as AIM) and mechanical trading systems. By altering AIM you don't necessarily turn it into a trading tool (although it is possible, but then some would argue that it is no longer AIM) just as altering a mechanical trading system doesn't necessarily turn it into an investment tool.
"The premise of X_DEV is 'capturing short term trading opportunities for long term performance'."
That's also the premise of day trading. However that doesn't make day trading strategies the same as long-term investment strategies. It would be ridiculous to equate a day trading algorithm with a buy and hold algorithm. Sure their goals are the same (i.e. make money), but the paths they take to get there and the risks involved are very different -- and I wouldn't advise the average grandmother living on a pension to start day trading.
"If I X_DEV the same stock for 1, 5, 10, 25 years can you label X_DEV as a 'mechanical system' or a 'trading tool'?"
I'm not sure why you're using "mechanical system" and "trading tool" in this way. These terms are not mutually exclusive. x-dev is a trading tool, in my opinion, but it can also be a mechanical system (although if you have to constantly change the setups over relatively short periods of time based on non-mechanical inputs, then I'd say it wasn't a mechanical system -- but the point is that it can be).
Again I'll state my point from my previous post. x-dev is not an AIM derivative. It is a completely different system that borrows AIM's trade sizing CONCEPT. However the actual IMPLEMENTATION leads to very different, and non-AIM-like, results.
There are other strategies that include AIM-like concepts, but none of them claim to be AIM derivatives or suitable for AIM investors -- I suppose if they did we'd have a new SDR being sent out every week.
Experienced AIMers probably already know the two algorithms are significantly different. However new AIMers might not know this and thereby mistakenly believe that by using x-dev they're using a more aggressive form of AIM. That's not the case. In reality they'd be using a different system (as I've shown above).
Does x-dev work over the long-term in different market conditions? I don't know because I haven't seen any robust test results. Perhaps as x-dev matures this data will become available.
However that point is moot. My goal is not compare the relative merits of AIM and x-dev, but to show that x-dev is not an AIM derivative -- but a new system altogether.
Regards,
Mark
http://www.automaticinvestor.com
Hi Conrad,
"On what occasions will you leave your wallet wallet behind?"
I'll leave some of the contents of my wallet behind if the investment idea is sound and proven and there is a high probability that I'll make money
Regards,
Mark
http://www.automaticinvestor.com
Hi Undertakr,
I agree with your comments. There is no way that the average investor can consistently make 100% per year without taking a huge amount of risk.
When someone tells me that I can consistently make 100% annually with low risk, I usually run away as fast as I can -- and I take my wallet with me.
I continually receive SPAM emails claiming outrageous returns and, of course, they're all fabrications based on sloppy math, misleading claims and they all appeal to people's greed.
If someone could make 100% per year with AIM-like safety, I doubt they'd be sharing it on a free bulletin board AND I know they'd be a millionaire many times over by now.
The fact is that we all can make a million dollars in the stock market, but it takes a proven plan, discipline and most importantly, time.
Thanks for your down-to-earth post.
Regards,
Mark
http://www.automaticinvestor.com
Hi Nimbus,
I'm just getting caught up with the BB posts after a great Christmas.
I've responded to your note with some clarifications on what I meant by backtesting as well as a question and an observation. See below...
CLARIFICATION
What I meant by backtesting is to choose a setup based on some period of past data, then use that setup on future data and see how it performs. You want to perform blind tests as this is the only way to determine whether a system has a decent chance of working in the future. Unfortunately a few months of returns doesn't cut it.
For example, I might look at the period from Jan 21st to Jan 31st, 2002 and then create a setup based on that period. Then I'd run the test on data from Feb. 1st to Feb. 11th, 2002 and note the results. I'd repeat the process (creating my setup using data from Feb. 1st to Feb. 11th and running it on data from Feb. 12th to Feb. 22nd) until the current date was reached.
Then I'd repeat this process for other periods, such as 1969 to 1970, that had different market characteristics. I'd want to do this as many times as possible.
Once I had the backtested returns, I'd compare the returns to the B&H strategy's returns to see which strategy worked best.
QUESTION
"Most of these are safer stocks than I ever looked at to get AIM action"
How do you define "safer?" Is it a lower standard deviation? Or some other measure?
OBSERVATION
One observation I've made is that although x-dev is compared to AIM in a number of posts I've read, I don't believe it can be compared to AIM. AIM is a long-term investment strategy designed to increase returns and minimize risk while x-dev is a short-term trading strategy. Any logical comparison ends right there. It's like comparing a TA system to the Buy and Hold strategy or comparing apples to oranges. At the end of the day we're after the same results (i.e. increased returns/minimized risk), but the path we take to get there is completely different.
x-dev contains one AIM-like feature, that being the ability to size a trade, however I can't see any other similarity. The algorithm used to size the trade is completely different from AIM, x-dev doesn't keep track of the relative amount of money you've invested in your portfolio (i.e. it has no Portfolio Control), it will completely sell you out of a position, it's meant for grabbing short term gains, you must continually modify your setups over relatively short periods of time and the list goes on.
I view x-dev as a trading tool that may or may not work over the long-term (if anyone has supporting data please let me know). However I don't view it as an AIM derivative or even anything remotely resembling AIM.
Comparing x-dev to AIM is like comparing a system that uses fast and slow EMAs that sizes trades, based on, say, how many days the fast EMA took to cross the slow EMA, with AIM. Sure it has the trade sizing functionality, but it's based on a completely different algorithm AND it's a trading system, not an investment system.
Keep in mind that I'm not debating whether x-dev works for some people or not. Rather I'm stating my belief that x-dev is not in anyway like AIM and therefore cannot be compared to AIM in that regard.
If we want to compare the relative performances of the two systems, then that's a logical goal. However we'd have to setup blind tests that covered a long period of time and that covered a variety of market conditions. Then we'd have to measure both the returns and risks in order to acurately compare the two systems.
You can do this automatically with AI, but I'm not sure if you can do this automatically with x-dev (somebody correct me if I'm mistaken). If anybody wants to do this for x-dev I'd be interested in seeing the results.
Finally, it is possible to continually change the AIM parameters (much like x-dev continually changes its setup) to take advantage of short-term fluctuations, however that introduces emotion into the strategy and elminates the mechanical nature of AIM. Therefore I usually don't recommend this to anyone but the most advanced AIM users.
Regards,
Mark
http://www.automaticinvestor.com
"Those using X_DEV can get over 100%/yr with far less risk than any flavor of classic AIM."
Now that's a bold claim. How do you calculate the risk as compared to standard AIM? I've found AIM to be one of the best methods of minimizing risk (along with diversification), so I'd be interested in knowing how your claim of "far less risk" was determined. Do you have historical backtests to show this? Or other data?
Also, when you say you "can get over 100% per year" is that in the general case, or in a specific case? Is it a consistent 100% per year or a one time thing?
My feeling is that if any system can return over 100% per year with LESS RISK than classic AIM, then that's some system indeed. However I also feel such claims should be backed up with hard data.
Regards,
Mark
http://www.automaticinvestor.com