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6. Diageo (DEO) - With funds focusing on emerging markets and Asia, UK multinationals like spirits maker Diageo are undervalued. At $74.22, I'm broadening my portfolio at a good price to include premium drinks such as Johnnie Walker, Jose Cuervo, Baileys, and Guinness. They also own 34% of Moet Hennesy (which owns luxury brands like Hennesy cognac).
A toast to your future success with this investment, as well as best wishes for 2011 !!
More Folioinvesting options:
Another feature that they offer, which I haven't used, personally, but may be useful to some, is trading the entire folio at a time.
Say, for example, you want to own the 30 stocks of the DJIA. How you allocate how much you want of each in the folio is set at your discretion and can be changed at any time. One option is for equal weighting so that you own an even amount of each. But say, hypothetically, you want to invest $1000/month in these. Doing some research, you find that you want to overweight the current "Dogs of the Dow," allocating less of your investment each month to the other twenty. This can easily be done by setting the weights. Then they'll take your $1000 and allocate it across all the holdings, buying fractional shares, if necessary. One could then get up to 100 transactions on a single purchase - each of which must be recorded separately if in a taxable account - the main reason I haven't used this option in a taxable account!
Still, this may be viable for some people, in some situations.
I'm going to look more into folio investing - sounds like they may be able to save money, even over a discount broker.
Praveen,
Having been their customer since 2001, I can give you some details as to how it works.
Rather than a per-trade commission they offer a flat membership of which their "unlimited" package allows unlimited folios (or groups of holdings, up to 100 per folio) and unlimited window trades per month. Yes, you can trade directly to the market or place GTC orders, but there is a nominal charge for these.
Folio Unlimited Plan - Annual
$290.00 a year for Unlimited Folios
$3.00 per trade for Market Orders
$3.00 per trade for Limit, Stop, or Stop/Limit Orders
Free Unlimited Window or Auto Investment Trades
Window trades are twice-a-day trades (11 AM and 2 PM) where you can place buy or sell orders. What's interesting about them is that they will internally match orders between customers, before sending the order out to the market, giving a better price on the bid/ask since the order is filled internally. Probably happens most often with bigger stocks that are widely held, but I suppose it still counts for something. Orders may be placed in either exact dollar amount, or in exact share amount. They support fractional shares out to 5 decimal places.
So, in terms of value, then, compared to a discount broker, if you're willing to work within their window trade structure, using a $7.99 transaction price for comparison, Folioinvesting achieves cost parity at the 37th trade and becomes progressively more cost efficient with each additional trade.
500 trades, for example, at the discount broker cost $3995. At Folioinvesting, $290. You do the math. <grin>.
Given this dynamic, the need for a minimum trade size is reduced, if not altogether eliminated. The only trade-off with their window system is that by the time the window closes, the settled price may have moved more-or-less in your favor.
Not sure how well it would work for you doing annualized trading, but if your total number of holdings are getting to the point where the cost savings become real enough to save you money, might be worth doing.
Best,
AIMster
For what it's worth, I've been looking into using Praveen's system in a tax-favored environment but with a daily, rather than annual checking. I've found so far that it is quite easy to have a position that overall is at a loss, but from which one can return profit, simply by buying on a dip of 10% and then selling again on a profit of 10%. Using folioinvesting negates an transaction charge so there's no commission overhead. It may be possible to make several round-trips like this over the course of a year. Of course, the initial holding may start to recover, in which case I'll take the profit along with the uptrend. I can then recycle the money back into other positions going down, or if sufficient cash pool reserves are created, add additional holdings to the system.
All in all, quite pleased with the core position methodology and simplicity.
In general, the ideal contrarian prospect is a stock, no one follows, no one reads about, it's off the radar screen. Or, it's a well known stock that has cratered. Everyone knows it's history. Shareholders who owned it and lost big, before selling, won't consider rebuying it. It's a leper. Some of the lepers pass over to the final resting place for spent corporations, but many do in fact recover, and can be great investments.
With the analogy I couldn't resist the line from the old Monty Python film The Life of Brian, appropriate for this time of year, actually as it follows the life of a poor fellow named Brian who happens to be in the next stable down the road and around the same time as Jesus. Initially mistaken for Jesus, it gives his parallel story. Which segues to my point of where, later on, Jesus having cured a leper of his affliction, said leper is still going around with his begging bowl, asking instead, "alms for an ex-leper? alms for an ex-leper?" That was all he knew to do, though now free of the disease.
Another contrarian play that might be less risky than dealing with an individual company that may crash-and-burn totally would be to buy ETF's of the lowest ranked relative strength. These are the ones of companies in the least favor. Likely they will return to favor sooner or later, and in so doing, afford the investor a tidy profit. Buy low, sell high, after all.
Best,
AIMster
Then the next question is do I use the cash to buy something still calling for a buy (GAB) or do I just sit on it in case STKL goes back down.
The eternal question. :)
A quick look at the STKL chart shows it's pushing the Bollinger bands to new heights and may be reaching overbought exhaustion. So, depending on the amount, you may want to take 1/2 of the proceeds from the sale and use it for GAB, and save the other half for the reversion to mean that will hit STKL, either sooner, or later, whichever comes first!
Congrats!
AIMster
I guess I was asking about the best way to manage the gold and stock assets. AIM against each other or AIM each against CASH
In a similar vein, there is (for at least US investors) the mutual fund PRPFX or Permanent Portfolio mutual fund. Recent details may be seen here:
http://www.permanentportfoliofunds.com/pdfs/perm/Permanent_093010.pdf
Whilst not as low in expense as some ETF's, .82% isn't horrid, either. Plus you'd have the advantage of only having to deal with one fund, rather than mind several components and adjusting the ratios between the various components. I suppose AIMing this one against cash would somewhat overweight cash as a total part of the portfolio, but unless you've a better suggestion as to what the other part could be, cash is about as simple as it can get, I'd think.
Best,
AIMster
I agree that, as markets drop, positions become more correlated. But, rebalancing a diversified basket of stocks and/or ETFs will still not need as much cash as one position.
Reading from the recent posts it seems the issue of cash reserve is the point of debate - how much is enough? It seems to me that Praveen's system is akin to Lichello's original design of having one cash reserve for the whole portfolio, whereas I think many AIM users now tend to AIM each holding individually, such that each has their own cash reserve level, portfolio control, and so on. I do think his system favors the macro approach and letting the stocks (or funds) act like the "money pumps" from each position, taking care of each holding individually. It does keep things simple - a point upon which Mr. Lichello and Praveen seem to want to concur.
Also note the Praveen's system, if followed BTB is checked at a rate 1/12th of AIM's original minimum - annually instead of monthly. Some even recommend AIM checking daily or weekly, so his will move in a slower, but hopefully more predictable manner. In this case the timing of 2008 may well have been something of a "black swan" by virtue of happening at the end of the calendar year. Had the bottom of the down happened in June-July, for example, his calendar cycle wouldn't even have noticed.
Just as Lichello reduced the cash reserve as the bull of the '90's was in full rampage, Praveen's 30% max seems reasonable, given his timing and absent more flying black swans, coming in for a nosedive!
My 2 cents worth on this one.
Best,
AIMster
Not sure where you got the information on CHY, but the data on CEFconnect shows much more reasonable:
As of 12/10/2010
Share
Price NAV Premium/
Discount
Current $12.82 $13.01 -1.46%
52 Wk Avg $12.31 $12.48 -1.35%
52 Wk High $13.49 $13.23 2.82%
52 Wk Low $11.14 $11.74 -7.30%
Distribution Rate 7.96%
Distribution Amount $0.0850
Distribution Frequency Monthly
Declare Dt Ex-Div Dt Distrib. Dt Amt Income LT ST ROC
12/1/2010 12/10/2010 12/3/2010 $0.0850 $0.0850 0 0 0
11/1/2010 11/16/2010 11/9/2010 $0.0850 $0.0850 0 0 0
10/1/2010 10/15/2010 10/8/2010 $0.0850 $0.0850 0 0 0
9/1/2010 9/15/2010 9/8/2010 $0.0850 $0.0850 0 0 0
8/2/2010 8/13/2010 8/6/2010 $0.0850 $0.0850 0 0 0
7/1/2010 7/15/2010 7/8/2010 $0.0850 $0.0850 0 0 0
6/1/2010 6/15/2010 6/8/2010 $0.0850 $0.0850 0 0 0
5/3/2010 5/17/2010 5/10/2010 $0.0850 $0.0850 0 0 0
4/1/2010 4/16/2010 4/9/2010 $0.0850 $0.0850 0 0 0
3/1/2010 3/16/2010 3/9/2010 $0.0850 $0.0850 0 0 0
2/1/2010 2/12/2010 2/5/2010 $0.0850 $0.0850 0 0 0
12/18/2009 1/6/2010 12/29/2009 $0.0850 $0.0850 0 0 0
Also the 30 day wash rule must not apply when you sell at a gain?
Correct. The "wash rule" is only applicable if claiming a loss.
AIMster
RPM International (RPM)
A favorite of NAIC stock selection clubs for years. Am curious if in your "trolling" for stocks are you biased toward "value" or "growth" stocks? Or do you use other criteria for selection, a la "Buffetology" for example?
Best,
AIMster
...Rubin served in the Clinton administration. It was Rubin who helped push through the Gramm-Leach-Bliley Act that effectively allowed the merger of Travelers and Citicorp. A year later, Weill made Rubin a board member at the company he helped create, paying him a salary of $17 million a year.
The best politicians money can buy. Disgusting. Though I'd be glad for 10% of Mr. Rubin's salary, I'm not greedy!
In articles like this one, and some of Bob Herbert's in the NY Times of late there's good detailing of the problems that we've got and with this article some of the more dubious ways we got there. They seem to run long on describing the problems, but woefully short on what the average American can actually DO about it! Even the elections are a farce.
Cynical and pessimistic,
AIMster
I have one other idea for CHY replacement: PFF
A good link on these can be found here:
http://www.investorplace.com/24209/are-preferred-securities-right-for-you/
PFF is 100% tied to the financial sector, other alternatives offer more diversification.
AIMster
What do you think of VCIT Vanguard Corp Interm or XLU utilites ETF. Both have a about a 4% yield.
The Vanguard version is somewhat more diversified as to where the money is coming from:
Asset-Backed 0.0%
Commercial Mortgage-Backed 0.0%
Finance 36.9%
Foreign 0.0%
Government Mortgage-Backed 0.0%
Industrial 51.5%
Other 0.0%
Treasury/Agency 0.5%
Utilities 11.1%
Total 100.0%
Hi Adam,
You might look at COY. They've a 1.18% expense rate, far better than CHY's 3% and are trading at a slight discount to NAV.
See: http://www.cefconnect.com/Details/Summary.aspx?ticker=COY
CEFconnect used to be ETFconnect, but they dropped the ETF coverage and are now focused solely on Closed-End Funds. Good sorting and screening on the site too.
Best,
AIMster
Why should we make things simple if it is so easy to make them complex and impossible to fathom?
Take this for eample
And in the empty space that follows until the bottom of the message is infinite possibility! As simple, or as complex, as you like.
For the worst performing companies, you've put in additional monies to build them back up to #2,000. So, you're investing more in the losers, and less in the winners. Can there be reversion to the mean? Often there is, and often there is not. Strong stocks can stay strong for years, if performance justifies, and weak companies can get weaker, or even disappear.
Valid points, which is a weakness with AIM as well. Which is why some of us have decided to forgo individual stocks and use CEF's/ETF's instead. Not that funds can't vanish either - they do, but the likelihood is for greater longevity with a fund holding many stocks, rather than the stock of a single company.
AIMster
For the ones that are bigger than the CV value, they will keep their current CV value. More thinking is needed about what to do with those.
I've got a couple like that that were purchased in 2007 at the high for them and whilst they're now above $2000, like the $2200-2400 range, I can't sell them back down to $2000 without taking a loss, which I'd rather not do. If they get up to the point where I can sell off a couple hundred I'll probably do that. Meanwhile, as they're all dividend payers, I'll take the dividends for now!
In pondering Praveen's system I find that it falls in the family of "core position" systems where one takes a core value, $2000, for example and then trades around that with future sales and/or purchases.
Best,
AIMster
Since the basic STR system is to rebalance annually on at least a 10% move, that means that, at most, we will have 1 trade for each $2000 in the account. 7/2000 = 0.35% expense ratio. I think that is low for a managed fund - which is what I consider my portfolio to be.
But, since you're not selling the whole $2000 to rebalance, rather just the 10% difference ($200), isn't the expense more correctly figured out as 7/200 or 3.5% of the actual trade? Still not bad, given the annual frequency, but perhaps just two ways of looking at the same thing.
So, with STR, you can account for growth at the individual stock level by increasing constant value, or at the portfolio level by adding positions with excess cash, or both.
Praveen,
One part of your "system" that I find most useful is the adaptability. I also like the simplicity of keeping positions at the same constant value, less work than some at this level, others at that level, and so on. As I'm still in the working world and adding cash, one could grow the lot to a new constant value by not taking some profit when you would normally, and use the added in cash to bring the laggards up to the new level, and go from there.
Best,
AIMster
What are the flaws in AIM and STR? Firstly, there is no time dimension. Imagine that you hold stock in a successful business, that is profitable, reinvesting it's profits, and growing more valuable each year. Yet after a year or two, you are willing to sell it based on it's price relationship to the original value, not it's current valuation.
Of course it's only the comparison between one's original entry point and the current valuation that allows one to know if the compared position is at profit or loss. I suppose the idea of "cash is king" vs buying into a growing business is the horn of the dilemma. More so with individual stocks than with ETF's I think. How many companies, for example, did we see in the dotcom boom that flamed totally out of existence once the bubble burst, though they looked like solid winners for a couple of years there? You most assuredly would have been better served selling out of those! On the other hand, if one had made a significant purchase in a company from Arkansas called "Wal-Mart" back in the early 1980's one could be retired and not have to worry about AIM or much else. In that case some position akin to Buy and Hold would have proven the most profitable. But the problem is that you can't know in advance.
If one can overcome the commission issue of more frequent trading such as using a brokerage like http://www.folioinvesting.com where they work on a membership basis rather than a per-trade commission, one could perhaps run these "money pumps" as Praveen calls the set of holdings at a faster than annual rate, taking advantage of more opportunities to buy at lower prices and sell at higher, even if the general long-term trend is "up."
AIMster
I've been away for awhile. I just noticed that one of the boards in the aim grouping is a Constant Value Plan. The Stock Trading Riches Boaerd. The Pc is held constant I think. Unlike aim which over time grows. Should make interesting contrast. That board makes more sense to be grouped here than CANSLIM a momentum style of investing.
You are correct about the intent of Praveen's new board based on his modelling of a constant value system. In his very simplified model, there is no PC at all, rather one makes an investment in a stock or fund for a given dollar amount and then rebalances to that amount either by selling should the price rise and therefore the value of the investment over a certain percentage, or adding cash to bring the value back up to the original investment value if the price has declined. Doing this once a year allows for long-term capital gains to be taken. Given all this it is safe to say that it is not a momentum system.
Best,
AIMster
So the Tax Man doesn't give a hoot about the AIM-quantity and only purchase date and the IN-OUT and amount? Or does he actually look at the number of shares that were bought and share price and takes that as a profit basis, if there was any? Then the Tax Man actually treats the shares as if they were traceable units.
You got it. Shares held, then sold for less than 1 year are treated as regular income (as far as the tax rate is concerned), shares sold after 1 year are taxed at a lower rate. So yes, the purchase and sell dates are important in determining which tax rate is applicable. That's why dividend reinvestment plans with their micro-sized reinvestments of fractional shares can produce reams of lines on a tax return, some maybe only offering a taxable amount of a few cents. But it all has to be accounted for!
Best,
AIMster
Is FIFO, SISO, TITO. . . . . or FILO, SISLO, TITLO. . .NINLO . .etc. actually advantageous? What is the possible benefit of matching the quantity of a Sell to a quantity that was bought in a particular order?
The primary use of matching individual buy lots with sale lots, and in which order FIFO or LIFO are mainly to due with recognition of gains or losses, particularly in a non-tax sheltered account. As AIM advocates buying at lower prices, if we match a later sale to the first lot, we may actually have a loss, but if we match it to the last we should likely have a gain. Outside of tax considerations, it shouldn't matter and your idea of a common pool makes perfect sense. If you live in a place where capital gains aren't taxed (tell me where it is, please!) this becomes a non-issue!
Best,
AIMster
what if someone came out with a new formation of a chart pattern and said this is the absolute best time to buy a stock. would it actualy become the absolute best time to buy the stock just because now everyone is looking for it and buying into it?
In short, can we create a self-fulfilling prophecy? I think the risk is more so now than formerly. Back in the pre-internet age information about stocks was gleaned from either a financial newspaper subscription, a visit to one's library to read Value Line, or so on. Now with the advent of internet chat rooms, all sorts of on-line screening tools and such, the dissemination of information is much faster and people with on-line brokerages can respond faster.
I recall reading someplace how the SEC busted some kid years ago now, I think in the tech bubble of the late '90's where he talked down a stock in a day-trading chat-room, placed a short order and made out like a bandit. The company quickly issued a news release countering the kid's pronouncements, but the damage had been done. They let him keep, BTW, the other $300,000 or so in profit he'd made as they had no direct proof of such actions. If they'd only given Bernie Madoff such attention!
But, to keep Praveen happy and bring this post and discussion reasonably back to being on topic, the question to ask in the context of his system is "is there a best time to buy a stock? In the ideal sense, of course, buying in late 2008 would have been ideal, as you'd have been spinning off profits for a couple of years now, more than likely. In late 2008, however, the majority opinion was to SELL.
The reality is that any time is the right time, though it must be cautioned that such a generalization does not relieve one of the necessary due diligence. When even institutional bellwethers such as General Motors, which back in their prime ranked up there with God, Mom and apple pie can go belly-up, no stock should ever be considered sacred and immune from whatever the market or world conditions can throw at it.
Some of us have made the sacrifice of the potential for more extreme volatility, and thus any reward based upon volatility capture systems, for the generally lesser risk of either closed end funds or exchange-traded funds. Surprisingly there is still enough volatility to make these work, especially if checked on a fairly infrequent basis. As Praveen noted elsewhere in a prior post, one is best served by sector or narrow-focus funds, rather than the broad-based full market tracking funds.
Best,
AIMster
Thought i was clear under number 4. Anyway , after an initial entry , I use AIM BTB with one exception; If the stock declined after my initial entry, I would never average down as AIM suggest. I would AIM buy only on an average up basis.
But then you would buy on down moves after the initial purchase? If not I suppose the confusion arises since AIM calculates a BUY order as the price moves down, SELL orders as the price moves up. Are you saying then that when AIM suggests a sale you're buying instead? I could see where such logic would be like pyramiding, which would be fine as long as the uptrend continues, but if you're always raising the average cost, how do you ever sell?
As confused as Toofuzzy,
AIMster
I'm glad there is an AIM Zone that lets all of us discuss these types of systems, since they work so well.
Indeed. And part of what makes them work is that they are, by nature, contrarian to the general actions of the "herd," and the more widely prescribed advice to "cut losses short and let winners run," which has always bothered me - "run until when?" Run out of gas?
Seriously, though, I wonder how the whole "game" would change if the contrarian systems became dominant? Would they still work or what's currently "anti-contrarianism" then become the more effective paradigm? Probably only a theoretical discussion as the mentality of the "herd" is unlikely to change but it is like living in a concave mirror and wondering how life is on the convex side. What sort of reflection do you get then?
At a certain point, I'm probably going to feel that I have too many stocks, so then I'll increase the constant value of each position rather than keep buying new positions for $2,000.
At what point for you would you cross the threshold of "too many?" 25 - 50 - 100 - more? Even with only the annual trading you'd still get bombarded once a year with annual reports and proxy forms - largely a good contribution to your local recycling after perusal, but does sound somewhat cluttered.
I know Lichello kept advocating to downsize, downsize, downsize, feeling that people as a rule tend to have too many. I suppose an even 100 would make each only 1% of the portfolio. to minimize risk in one sense, but at what point does the "law of diminishing returns" overtake a quest for diversification and risk reduction. Is it possible to find the most efficient frontier in a smaller capacity, at a higher dollar value per holding?
it is an interesting system i might have to get the book i am interested...however i like to swing trade so holding something for a year (or even a month...lol) for me is rough but would be nice to sit aside on money for...
Well, doesn't mean you can't use this system with part of your portfolio and have another part for the swing trading. That way you'd have the best of both worlds.
yeah i would love to ride it just once those electric bikes are amazing 0-60 in .7sec or something that would be fun
Ha! I thought you were the person on the bike so that's why I said "nice bike," rather than what I was actually thinking of "nice babe on a nice bike!!!" Trying to be polite about it, you know. <grin>!!!
At a certain point, I'm probably going to feel that I have too many stocks, so then I'll increase the constant value of each position rather than keep buying new positions for $2,000.
Any particular favoritism for stocks, or would you find ETF's to work in much the same manner? Or would the likely lesser volatility be less conducive to the volatility capture aspect of your system?
One other aspect I forgot to mention beyond the impact of more taxes with more frequent cycling of the program is trading costs. Whilst discount brokers can help to a degree, one brokerage that doesn't use a commission/transaction structure is http://www.folioinvesting.com Theirs is a membership model with an "unlimited" plan that allows a lot of trades per month within their "window trade" system at no cost per trade. Thus you can buy or sell 1 share or 1000 at the same cost.
Best,
AIMster
Are you still at the position of $2,000 per holding or have you changed that valuation as the basepoint?
so your formula is based on only making one trade a year? it wouldn't work monthly or weekly?
Depends on whether or not you're running the system in a tax-deferred or taxable account. Yes the system can calculate at any time interval you choose, but Praveen's annual is to make any capital gains be of the long-term variety in a taxable account. Using the system in a taxable account at a higher trading frequency would result in higher capital gains taxes.
Also the annual schedule ties in with his interest in keeping things simple. An annual checkup is about as simple as one can get!
He's also presenting a "core" system, not that it must be followed entirely as "gospel truth" and used as he describes without modification to your particular needs, time to commit or situation. It's adaptable.
Best,
AIMster
P.S. Nice bike!
Glad to see the AIM group is still active. I have a lot of catching up to do and I am sure all of you have made advancements to the AIM system. What is the opinion of everyone as far as software goes. What works best?
Welcome back. The best way to learn of the tweaks over the past few years would be to pick up from your last post of several years back, then read forward. Not all at once, mind you, as that would be a lot to take in, but you will be able to glean the refinements and issues that have crossed the neurons of our various members.
Truth be told the only software you need is a #2 pencil and some paper. The only real advantage AIM software confers is some measure of automating the calculations and giving a historical view, over time. Something that you could create yourself if you've a spreadsheet program available. If you don't want to spend $$ for Microsoft Excel, Open Office has a pretty full-featured suite of programs for the stupendous cost of free.
AIM software is also useful if you're going to manage a lot of individual AIM programs, again largely from an automation perspective. If you really feel that you must have something, Automatic Investor has a pretty good following, with some others out there as well. Keep in mind that it's more what you put into the AIM program that makes the far larger difference than using any software to "enhance" the process.
If you have more questions, DO feel free to post!
Best,
AIMster
<OT>
Sounds like it would be good with orange peel also
Of course, I wouldn't mind sharing some with Mrs. Emma Peel (Dame Diana Rigg), back in the day! of course, technically she's old enough to be my mother but since this is a fantasy and after enough Limon or Orange Cello, it might not matter that much anyway!
Of course, moderation would be the key here, lest one overindulges and has one avenger of a headache, heading to the john, feeling like one's been run over by a steed.
And I'll end on that note...
AIMster
Thank you for your interest in my trading success. But I am not a trader. I check my stocks once/month and trade any one particular security at most a few times/year. I have set prices I am willing to trade that I know in advance and are set at the time of the previous trade. I use GTC orders when the price gets close to what I want.
Probably has 'em scratchin' their heads and their butts at the same time wondering, how does he DO that? :)
And a toast of Limoncello for Mr. Lichello for keeping us all not toofuzzy unless we have too much of the former and not enough of the latter! :)
Best,
AIMster
this message is for <OT> consumption and viewers must be 21 or older:
BTW, there's a brand name of special liquid called EverClear sold here in the U.S. It's nearly 100% grain alcohol. That's nearly 200 Proof for those who care. Probably not a good idea to have sources of ignition around while drinking the stuff!!!
Wowsuh! Heavy duty! Looked it up online and you can't even legally buy the stuff in some states of the high end version, including NY, drat, though it's legal in New Jersey, go figure.
A shot or two of that stuff would give a whole new meaning to being moved by the spirit(s)!
Has a "cult following" similar to Absinthe, which now is legal again, Lucid being a popular reincarnated brand.
But with all of this going on, a toast to Mr. Lichello at the least!
Well said, Conrad!
Glad to know I'm not the only one feeling that Clive & Dr. Stephen Hawking are two who can really understand each other. Though as I understand it Dr. Hawking recently decided that everything came originally from nothing. An idea which, I suppose, is the grand reunification of science with religion that people have been saying would happen for some time now, though it certainly flies in what passes for normal experiential reality as we see it from day to day. I mean, we are here by virtue of our parents, who came into existence because of their parents, and so on back. Even if you take the evolutionary theory back to it's logical beginning, somewhere there's monkey business involved, not "nothing." But the religious posit "nothing" in the beginning, then the creation came into being by virtue of some Creator, likely in Dr. Hawking's case less a dis-incarnate entity rather than some proof at a quantum realization of this possibility. Or not, at the same time. And both together.
It would be interesting to get Dr. Hawking's ideas on AIM or investing in general. But then his general premise does apply in that we all start out with nothing and it's how we invest and what we invest in that allows us to create something from nothing, after all! Hmmm.
Best,
AIMster
Re: Chart of the Dow components (excluding GM) over the last year Regardless of what is being illustrated, at least its nice to look at!
I believe the point was correlation. Clive then sort so segued into a "Dogs of the Dow" idea, after mentioning Praveen Puri's constant value method (by illustration more than by name) in a follow-up to me, so he's using AIM to hit all the bases right now! :)
Best,
AIMster
He often suggested that a single AIM managing all holdings was the way to go, but when apparently pressed did say something along the lines that many AIM's could be run provided they each were allocated their own cash and that cash wasn't shared between them.
i.e. total the value of all the stocks you hold and use that as the AIM stock value for a single AIM.
Points noted, and well said! There are pros and cons to each approach. One thing that Lichello was constantly stressing was to keep things as simple as possible. In the days when the various calculations all had to be done manually, and it wasn't easy to get value updates at the push of a button as it is now, once a month calculation of a single total would be sufficient for him.
The group many stocks into a single portfolio has the advantage of allowing you to decide which of the stocks in the portfolio should be bought or sold to satisfy AIM's request to either buy or sell. In this case AIM doesn't even know anything about the individual holdings in the portfolio, just that the overall value has changed relative to portfolio control and therefore an adjustment is necessary. If your preference is to keep a fairly even weighting of each of your holdings, this method is preferable as it does give you that measure of control otherwise absent when AIMing each holding individually. The downside to this is the tendency for the actions of the individual stocks within the portfolio to cancel each other out, making the trades likely more infrequent than AIMing individually. Also, some people don't want to be bothered with how to divide the instruction in to more than a single transaction.
On the other end of the scale, of course, is holding each item individually and letting AIM manage each according to it's own rhythm. What will happen in this case is that the holdings that are most amenable to working with AIM's logic, i.e., volatility capture as prices change, will, over time grow as a larger proportion of the overall portfolio than those that aren't triggered as often. This may necessitate some non-AIM driven re-balancing, should one decide that say gold, for example, now is too heavily weighted as part of the total portfolio.
Which is not to say that there isn't a possible middle ground, which would consist of some portfolio holdings being AIMed together as a group in a single portfolio and others AIMed individually. Very highly correlated holdings might benefit from being AIMed together, whereas a pair of inversely correlated items would do better to be AIMed individually.
There is no one right or wrong answer. Depends on our circumstances and how we want AIM to augment our portfolio buying and selling decisions. Again, AIM sets the ratios - how we implement them is up to us.
Best,
AIMster