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Have just read through the examples you posted on jfholdings, and I must say the clarity of all your charts and posts both there and here is impressive. Could I suggest a couple of additions? When comparing investment systems, I find it significant and helpful to see statistics for Maximum Drawdown, Sharpe Ratio and Volatility. (E.g. in Mebane Faber's papers.) From just eyeballing the example charts on jfholdings, it appears that, cash included, overall portfolio drawdown is only slightly reduced by AIM compared to 100% buy and hold, even with 20 percent starting cash, and the increased CAGR is also quite small.
Daisy42
Retirement AIM
In the 4th Revised Edition, Lichello had a chapter (17) 'Retirement AIM - A New Dimension for Retirees' (that's me folks!). This immediately follows the chapter on 'AIM-HI - 2001'. For Retirement AIM he recommends the AIM-HI settings of 20% starting cash, 10% SAFE and 10% minimum trades, monthly reviews, applied to a mixed equities/bonds fund, with a short term bond fund used for the cash reserve instead of a money market fund. Temptingly simple.
Daisy42
Hi Toofuzzy,
I was just using the gold miners fund as an example, to see what effect a 50% fall in the stock price would have on an overall AIM a/c that started with 50% cash. If you did nothing, you would have 50% of your starting stock value and 100% of your starting cash value, i.e. 75% of your starting total a/c value, a 25% drawdown. But if you do AIM-directed purchases on the way down, your maximum drawdown will be greater - 37% instead of 25%, and this sort of effect would apply to any security. Of course I understand that if you had 100% in the stock to start with your drawdown would be even greater at 50%.
As we both agree, if this is happening to one account and your other AIM accounts are moving in the opposite direction, that's fine.
But my second point was that in a general market downturn like 2002/03 and 2008/09, if your AIMs are all stocks, it's quite likely they'll all go down together, so your whole portfolio is likely to suffer a large drawdown. I fully realise this is, hopefully, a temporary 'paper loss', and the merits of AIM on the hoped-for recovery will become apparent, nevertheless it is a significant statistic about portfolio performance under a given investing system.
Perhaps what I'm saying is that even with AIM you need to manage your overall portfolio risk level by including a large helping of hopefully non-correlated asset classes.
Mebane Faber's 10 month moving average trend following system is just as mechanical and unemotional as AIM - at each month end, if each asset is above it's MA you stay/get in, if it's below, you're out in cash. He reports the average portfolio cash level as 30%. If you want to do momentum as well/instead, you rank the assets by a pre-determined criterion, e.g. average of 1,3,6,12 months returns and go with the top half or whatever - equally mechanical and unemotional. You can even add a risk weighting - return/standard deviation - to that if you want, to guide the choice of asset and/or position size - all mechanically and unemotionally. It can all be done on a simple spreadsheet with monthly input of the relevant data.
As Tom said, perhaps the answer is to run two portfolios, one using AIM and one using trend following and/or momentum. In fact diversifying strategies as well as assets is, I believe, regarded as good practice.
Regards, and still using AIM but constantly reading, exploring and thinking!
Daisy42
Hi Toofuzzy,
Thanks - yes, I'm familiar with the Cash Burn table. My concern was with the total drawdown to the combined stock and cash account when following AIM's purchasing instructions at intervals on the way down.
As it happens I can answer my own question. I own some gold miners fund which dropped 53% in price before rising recently (I'm hoping the bottom has been reached, but we'll see!). It used all the cash allocated to it. The value of the combined stock and cash account dropped by 37% - as I suspected, AIM purchasing on the way down exacerbates the drawdown.
Obviously the gold miners is a specific sector and a volatile one. It is a small proportion of my portfolio and has been negatively correlated with my other positions over the last year or so, and these have done very well, so it hasn't bothered me unduly. But the general markets have declined by this order of magnitude twice this century and could well do so again, in which case my overall portfolio (and those of other AIMers) will be hit hard. (In fact it looks as if some other AIMers would run out of cash about half way down!) I have got some bond fund AIM accounts too, but next time round they could lead the decline.
People may say that this level of drawdown is to be expected with AIM and all is fine because they are 'paper losses' only, and the benefits on the rebound are worth it. But assuming I'm right, little is made of this feature of AIM, and my mind has focussed on it as a result of reading several papers on trend following and momentum systems, which report various portfolio statistics, including portfolio volatility, Sharpe ratio and maximum drawdown. E.g. Mebane Faber's Quantitative Approach to Tactical Asset Allocation, including the Feb 2013 update, in which for a multiple asset class portfolio (20% domestic stocks, 20% foreign stocks, 20% bonds, 20% REITS, 20% commodities) with 10 month moving average trend following, he reports 12% CAGR and 10.74% MaxDD over the period 1973-2012.
Best wishes,
Daisy42
SPY test of AIM
The results are very encouraging, but I wonder if the author calculated the Maximum Draw Down. If the index declined by 50%, with a 50% cash starting component, the drawdown would be 25% over the whole account on a buy and hold basis, but AIM buys more on the way down, and these additional purchase decline too, until the bottom is reached, so I would imagine the MaxDD is significantly greater than 50%. Has anyone worked this out? I think it is an important statistic for any investment system. I also think that in managing an overall portfolio it is important to try to manage overall portfolio volatility, and MaxDD risk - 10% or less as a target for annualised volatility seems quite common.
Daisy42
V Wave
This week's readings are just over 60 for individual stocks and just over 40 for diversified mutual funds and portfolios.
Does the lower reading refer to funds and portfolios which are essentially of stocks only?
If so, is there a case for a third, still lower figure for portfolios that include substantial bond components, where these too are being AIMed? (If so, the question arises of what proportion of bonds.) Mr Lichello suggested 25% for a mutual fund that was a mixture of stocks and bonds.
Incidentally, I notice that some of the reports to this BB show cash levels down in the mid-20s. I appreciate the purpose of the V Wave is to establish starting point cash levels, but even so does this suggest some people are operating at higher than recommended risk levels?
Mike (Daisy42)
Tom, I kind of guessed the answer would be to run two parallel portfolios, one AIM-based and one using Momentum/Trend Following.
This is an example of the kind of article I meant:
http://cama.crawford.anu.edu.au/pdf/working-papers/2013/242013.pdf
It looks a bit more serious than just a get rich scheme.
Daisy42.
AIM v. Momentum/Trend Following
There are quite a few papers of an academic/semi-academic nature on the Internet detailing evaluations of trend following and momentum-based investment systems for multi-asset portfolios - e.g. using 10 month moving averages to switch in, out and between asset classes, selecting the top 5 or 10 asset classes by 12 or 6 month returns, sometimes taking volatility of recent returns into account as well, usually operated on a monthly review basis.
I have found virtually nothing of the same apparent rigour about AIM. It would be good to see a 'head-to-head' comparative evaluation of the two different approaches. Quite a task, and I'm not equipped to carry it out!
The momentum and trend following approaches appear convincing, and I'm finding them rather seductive at the moment, wondering if some version of them would give me better results, and a simple-to-operate process seems easily within reach. I'd welcome any comments.
Just had an AIM-directed sale of 5.3% of Japan. Good profit - over 30% against average buy price. Once again the profit level is really due to Termvesting into the position last year. Although satisfying at the individual level, its effect on the overall portfolio is very small.
Daisy42
Hi Karw,
Thanks, yes that clarifies - particularly the bit about selling virtual shares.
Best wishes,
Daisy42
What is "no-down AIM" please? Is it the same as the "no-down-payment AIM" variant? How do they work? I read in an old post that for NDP AIM you start with 100% cash and buy no shares (or just a few), set PC at 2000-4000, then start AIMing in the usual way, but ignoring sell recommendations. Do you set a fictitious starting value to equal PC? Any clarification welcomed.
Thanks.
Daisy42
Gold miners
My gold miners fund is asking for another big buy, and I don't have much more cash left allocated to that account than it will take to satisfy AIM fully,so I think employing the 'halfway-to-the-wall' technique might be wise. The 13/30 moving average technique would have been a good one to use in this case - it would have stopped me making maybe 4 or 5 buys on the way down so far. I could still use it on this occasion, and wait for a positive cross before buying any more.
Daisy.
Fear & Greed Index
I like it. It would be interesting to see the Fear & Greed Index Over Time chart with the S&P 500 superimposed.
Possible trading system: % in stocks = 100-FGI, i.e. 14% at present.
Regards,
Daisy42.
Portfolio performance
Last 12 months 14.4% gain overall, with cash included, so ROCAR considerably higher – will have to work that out - my cash levels have been very high. The figures include a gold mining stocks fund holding which is of course considerably down.
Considerable benefit came from Termvesting into a number of accounts over a number of months until my target cash/equity ratio was reached, then converting into AIM accounts. With the dip over last summer a lot of cheaper purchasing was done that way. Won’t always work that way round of course.
Have had numerous sales during 2013:
Europe tracker: 3 sales @ +17.5%, +21.3% and +26.2%
Japan tracker: 3 sales @ +10.3%, +22.0% and +26.6%
US tracker: 3 sales @ +10.3%, +11.0% and +18.9%
Asia Pacific tracker: 3 sales @ +7.9%, +13.3% and +18.4%
UK FTSE All-Share tracker: 2 sales @ +12.8% and +14.2%
UK FTSE 250 tracker: 4 sales @ +6.2%, +16.0%, +18.2% and +23.9%
Emerging Markets languishing.
% gain figures are based on average prices during the Termvesting process.
Gold mining stocks fund: 5 buys and another on the books for when the 30 day period is up, unless prices rise significantly. Certainly a good test of one’s resolve to stick with the program!
What to buy now? Most things making new 5 year highs nearly every day and therefore unappealing. Commodities funds? They are certainly way below 5 year highs.
Regards,
Daisy42.
"Another risk indicator about which I have some familiarity has also risen this year, but is only now in the middle of its "average" risk range."
That is indeed tantalising!
I'm interested to know what you use to assess the risk level of non-US markets, to which the V-Wave presumably does not apply, e.g. the Japan ETF of which you've just reported a sale.
Daisy42
Hi Toofuzzy (and OldAimGuy),
So, from Tom’s latest view, SAFE should/could be set and kept at 10 on the buy side and zero on the sell side, with Vealies used when cash exceeds the desired level. That keeps it simple.
I understand that lower SAFE settings for less volatile securities will lead to more trades – but smaller and less profitable ones, so as you say, is there a lot of point?
“I own the whole market (large, small, foreign, REIT, BOND) and I ALWAYS want to own them.”
I’m interested to know how you decide what proportion each should be in your portfolio. Large, small, foreign and REIT will be positively correlated, and bonds negatively (usually, and government, not high yield).
Regarding the use of moving averages with AIM, allowing you to do one big sell at the top and one big buy at the bottom - I suspect very often things won’t behave as neatly and as cooperatively as that, but it’s an interesting idea. It seems to be trying to combine contrarian investing with trend-following. I’ve had a quick look at what the difference would have been with my gold miners fund over just over a year. Just a small, limited comparison, but it seems that in this case pure AIM would have ended up with having purchased more additional shares at a slightly lower average price than using a 13/30 SMA overlay. Fairly obviously the moving average modification requires the price to recover a bit before a buy is permitted (and the reverse at the top), and this did cause a lower priced buying opportunity to be missed in this particular case. This case is not yet concluded of course! AIM is currently indicating another buy, which I will execute if it’s still there at the end of this week when the 30 days since the last buy are up.
It could be an interesting week, following the Cyprus bail-out debacle!
Daisy.
Hi TooFuzzy,
I'll hold my hands up to having made it more complicated.
AIM by the book is simple but once you agree some parameters can be modified, various questions and then choices arise and I like to try and have a rationale for making them. (Things become a little MoreFuzzy?!) Modifying SAFE settings seems to me to be the trickiest area. Over the years Tom has made various suggestions about SAFE settings and how to split SAFE between the buy and sell sides. Hoping I don't misrepresent him, I believe these suggestions include lower SAFE settings for less volatile funds, having zero buy SAFE and all SAFE on the sell side (during the late '90s bull market I think), then shifting to 0% sell SAFE with all SAFE on the buy side (when there were signs the secular bull market was coming to an end during 1999/2000), as well as using zig zag and also 52 week highs and lows to gauge SAFE settings. So all that started me off!
Daisy.
Hi 1step,
The cash proportion decision is intended for use at the point of setting up an AIM account. Thereafter you just follow AIM's buy/sell recommendations.
Having said that, it is a good idea to keep an eye on the cash %. If it grows too much as the result of successive sales, the parameters can be modified. The Vealie is one of the established ways of tackling this, which means ignoring AIM's sell recommendation and adding half the sale value to Portfolio Control. It would also be possible to raise the sell SAFE and/or lower buy SAFE. Reference to the Cash Burn chart shows what cash % is needed to keep buying for a given drop, at particular buy SAFE settings. If you are significantly above the cash level for the drop you are allowing for, you could lower buy SAFE to tie in with your actual cash level, using the Cash Burn chart. I have just done this with a couple of funds.
If you start getting rather low on cash, there is the 'halfway-to-the-wall' technique, which means limiting buys to half the available cash, assuming AIM is asking for more than this. This means you can continue to buy something for longer.
Interesting comment in one of the 2002 posts linked to the one you referenced - #506 from Rien - suggesting not to initiate AIM accounts when the recommended cash % is above 35-40. For the S&P 500 back to 1950, the average drop from price to 5 year low is 39%. The current reading is 56% - the 92nd percentile.
Daisy42
Hi 1step,
OK.
Take the fund I use which tracks the FTSE All-Share Index - Fidelity MoneyBuilder UK Index. Its latest 1 year volatility (standard deviation) as published on Trustnet is 11.04. The long-term standard deviation of 1 year returns of the S&P Composite (using Robert Shiller's monthly data) is 18.82, If it's true that the ideal stock for AIM has a beta of 1.4, and the standard SAFE setting is 10, then a SAFE setting of 1/1.4 = approx. 7 is arguably justifiable for a broad market index which has a beta of 1, at times of average volatility. So I argue that my fund, with its CURRENT 1 year volatility of 11.04, could justify a SAFE setting of 7 x 11.04/18.82 = 4 AT THE MOMENT. The volatility figures for the funds are updated monthly, so if they increase SAFE will be increased accordingly. It's important that SAFE does react to volatility, because at such low current settings cash would be exhausted by a deep downturn. I realise anyone could say this is all just a castle built on sand, but it gives me some sort of rationale. I haven't been using this approach for long, so could be caught out!
The FTSE All-Share Index is currently 48% above its 5 year low, so if I were starting a new AIM account for it today, I would keep 48% as cash.
I split SAFE between the buy and sell sides according to the fund's current position between its 5 year high and 5 year low. Like many equity funds at present, the fund is at a 5 year high, so I'm using 0% sell SAFE and 8% buy SAFE. By contrast, my gold miners fund is midway between its 5 year high and low, so SAFE is evenly split between the buy and sell sides. SAFE is also higher for this fund, 8% on each side, because of its higher volatility.
Everything is on a spreadsheet so I just have to input the latest price and update the 5 year high and low figures and volatilities as they change, and it does the calculations and produces the buy/sell recommendations.
Hope this explains my approach more clearly. Please note I'm a fairly recent AIMer and count myself an AIM student not an AIM master!
Daisy42
Re: AIM and low beta stocks
I read somewhere on this forum, or on a source linked to it, that the ideal stock for AIM is one with a beta of 1.4 (sorry, I can’t provide the link). One could then modify the standard 10% SAFE in proportion to this, so for a general market fund – S&P500 tracker – with a beta of 1, you could calculate SAFE as 1/1.4 = 7 (approx.). For a stock with a beta of 0.89, you could try 0.89/1.4 = 6.4 for SAFE.
In setting the initial cash proportion, I think you need to decide how much downside you want to allow for, in the sense of being able to continue buying in accordance with AIM’s instructions. The Cash Burn Chart (http://www.aim-users.com/cashburn.htm) shows that if you want to allow for a 50% drop, with SAFE at 10%, you need 50% in initial cash. If SAFE is smaller, either you cannot keep buying as far down, or you need to increase the initial cash proportion. The two parameters are linked.
To set the initial cash proportion for US stocks and broad-based funds there are the two VWave readings – these presumably assume a SAFE of 10%.
I have recently moved to using the 5 year low as my guideline, as being more generally applicable, because I AIM various funds for other regions of the world, and also I am UK –based. For example if the fund would have to fall in price by 50% to reach its 5 year low, I would allow 50% initial cash with 10% SAFE.
But rather than use standard, static 10% SAFE settings, I use ‘dynamic’ SAFE settings, with total SAFE based on the relative volatility of the fund, and the distribution of SAFE between the buy and sell sides kept in proportion to the position of the current price between the 5 year high and the 5 year low.
Because I’m using index-tracking mutual funds I don’t have beta figures, so I use published 1 year volatility figures. I compare these with the standard deviation of the annual returns of the S&P Composite, which is 18.82 over the period 1880 to date, and I assume a SAFE of 1/1.4 = 7 would be appropriate for this general market index. My FTSE All-Share tracker fund currently has a 1 year SD of 11.04, so SAFE is set at 7 x 11.04/18.82 = 4. The published volatility figures are updated once a month, so the overall size of SAFE will rise with an increase in volatility, which we can expect to see if the market starts to fall significantly. In this way I can be comfortable with a smaller SAFE in periods of low volatility like we have experienced recently, with the initial cash proportion set on the basis of 10% SAFE, and related to distance to the 5 year low from the current price.
So currently my SAFE settings are on the low side, and at or close to 0 on the sell side, with a 5% minimum transaction, with nearly all the combined SAFE on the buy side. The indicated initial cash settings are around 50% for the US, UK, Asia-Pacific and Emerging markets, but somewhat lower for Europe and Japan. (The highest ever figure from price to 5 year low for the FTSE 100 is 57%, reached in the last few days of 1999. The current reading is 46% and the average is 38%.)
This approach has given me quite a few 5% sales across most regional markets during 2013. Obviously the profits will not be as high as with 10% SAFE, but I quite like realising some of the profit after such a run up in the markets.
Daisy42
Gold miners buy
After several sales of US, Europe, UK, Asia-Pacific, Japan and Emerging Markets index funds over the last few weeks, I've just executed an AIM-directed 7+% buy on my (small) gold miners fund account. Rather than rocketing skywards immediately afterwards as anticipated :), it's already indicating another, nearly 8% buy - but I shall of course sit on my hands for 30 days (not literally). I still have 45% cash in the account.
Daisy.
Starting cash levels: 5 year lows
Thinking about ways to decide cash proportions for new AIM accounts in markets other than the US (for which there is the VWave), I decided to have a look at 5 year lows, i.e. by what % would the current price have to fall to reach the lowest price of the last 5 years. This would enable the 2008/9 low, which currently influences me a lot, to be gradually consigned to history.
On first inspection it seems to work quite well. The current figure for the S&P 500 is 55%. Shortly before the 1987 crash it was 60% or more. At the end of 1999 it was 68%, got down to zero during the autumn of 2002, got up 48% in Sept 2007, down to zero in Oct 2008 and Mar 2009. The results are similar for the UK market.
The current figures for other markets are:
UK FTSE All-Share 46%
UK FTSE 250 (mid-cap) 59%
Europe 35%
Japan 16%
Asia Pacific 52%
Emerging Markets 52%
Daisy42
Hi Tom - and Adam, Re: Cash build-up in AIM managed accounts.......
Thanks for your cautionary notes of guidance Tom, and Adam's note is useful too. My cash levels are mostly generous by comparison with the VWave for diversified funds - 40-50%. At the moment I'm determining the target cash levels by looking at the % fall from the current price to the 2009 low. In some cases this has now risen to 50% or more, less for Europe ex-UK and Japan. Specifically:
UK FTSE All-Share 47%
UK FTSE 250 54%
S&P 500 tracker (in GBP) 47%
Europe ex-UK 34%
Asia-Pacific ex-Japan 52%
Japan 36%
Emerging Markets 52%
Gold miners 54%
I would only consider a Vealie where the actual cash level is above these. If the markets correct these figures will come down accordingly. The recent run up, the facts that we are close to major resistance, and that the current cyclical bull is getting long in the tooth, all suggest that protecting profits should be the priority at the moment.
The 2009 lows give clear-cut major support levels for the moment, but the time will come when these are no longer so relevant, and it isn't obvious (to me anyway) how to determine the appropriate cash levels for non-US markets, to which the VWave doesn't apply (although there's a high degree of correlation between various global markets, apart from Japan). There's also the question of determining appropriate cash levels for bond funds - perhaps using current yields versus historic averages (nominal and/or real), or yield support levels - the answer could be quite high at the moment, if you want to bother at all!
Best wishes,
Daisy.
Hi Lostcowboy,
Yes I do bear the Cash Burn table in mind, when considering the buy SAFE especially (a lower buy SAFE will exhaust cash more quickly).
The way I determine my target cash levels is to calculate by what percentage the fund would have to drop from its CURRENT level to reach the last major low - in general that is the March 2009 low at present, and before that the March 2003 low. So my target cash levels change according to the level of the markets. I can see that in time these historic lows will become irrelevant - in a new secular bull market, and looking back to before 2000 it isn't as obvious what to choose. The answers I get are in some cases higher than the VWave for (US) diversified funds (emerging markets, UK mid-cap index, Pacific index gold miners fund), and in some cases lower (Europe and especially Japan).
I've also spent quite a bit of time looking at valuation levels, e.g. CAPE and market capitalisation to GDP, which would suggest quite low stock percentages at present.
Daisy
My first Vealies!
As a result of reading back through some earlier posts of Tom's I'm now using the 10% buy and 0% sell SAFE regime with mutual funds which he suggested, also taking sales as they arise, rather than waiting until the month-end. The 0% sell SAFE setting seems particularly appropriate after the recent run up in the markets and as we're approaching major resistance levels. I'm observing the 5% minimum transaction level, even though with these funds, in the environment I'm operating within, there are no transaction costs for buying or selling.
This has given me some sales today of US and Japan index funds. It also produced further sales advice for my UK FTSE 250 (mid-cap) and FTSE All-Share index funds. But the cash levels for these are at or above my target levels so I've implemented Vealies for them both, ignoring the sell recommendations and adding half their values to the Portfolio Controls. Does this mean I've progressed from being a Beginner to an Intermediate AIMer, I wonder!
Once again, AIM feels a very reassuring system to be using.
Daisy42
Re: HUSKY
Hi rscottie,
That's great, thanks. You can email me at:
daymichaelp@yahoo.co.uk
Thanks again,
Mike.
Apologies for duplicate post - due to slow system response and itchy finger!
Daisy42
HUSKY
Following up Adam's reference to the late Don Carlson, I found myself reading posts from 2003 about MACRO AIM, MattsMod and a system called HUSKY. There was sufficient information about the first two, but no details about HUSKY. It was very tantalising. I wonder if anyone can provide any details of how this system works?
Cheers,
Daisy42
Thanks to Ray and Adam for your replies and suggestions. Using ATR figures for establishing SAFE settings certainly produces much below 10% (at present) for index funds.
Following up Adam's reference to the late Don Carlson, I found myself reading posts from 2003 about MACRO AIM, MattsMod and a system called HUSKY. There was sufficient information about the first two, but no details about HUSKY. It was very tantalising. I wonder if anyone can provide the details of how this system works?
Daisy42
Core position trading alternatives
Has anyone done a comparison between the effectiveness of by-the-book AIM and a system which sells 10% of the initial holding by number of shares when the price rises by each 10%, and buys a further 10% when the price drops by each 10%? The shares sold are bought back if/when the price drops back again by 10%, and the shares bought or bought back after price declines are sold if/when the price rises back by 10%.
It would seem to be a little more aggressive in that standard AIM waits for a 15% increase and then sells only 5%, similarly with further buying on price declines, so perhaps it would be more suitable for lower volatility securities.
Daisy42
Valuing gold
Difficult to do as it has no yield. I thought that looking at the real, i.e. inflation-adjusted price could be helpful. As I'm UK-based I'm interested in the real price in GBP. Found this:
http://www.retirementinvestingtoday.com/2012/08/gold-priced-in-british-pounds-gbp.html
In August 2012, at £1,050 per ounce, it was over double its long-term real average, and 90% of the all-time high.
The current price is £1,061. Doesn't suggest it's a price to buy at?
Daisy42
Sale
Have just ordered the sale of just over 5% of my Europe-ex UK tracker fund, using 10% SAFE. I decided not to wait until the month end. AIM is also suggesting smaller sales of 2.5% of both my S&P 500 and UK FTSE All-Share Index tracker funds, which I will ignore as the actual amounts are small too. I am using lower SAFE figures with those (4% for US and 7% for UK, in proportion to their relative volatilities, in GBP). I have been tempted to split the SAFEs for my holdings to give lower selling resistance (and more sales), but have resisted so far.
Daisy42
End of the month
It's fairly standard practice to make regular investments, and review existing investments (e.g. AIM accounts) at the end of each calendar month. I do this, but I've noticed that, recently anyway, markets seem to have a habit of dipping around the middle of the month then rising at the month end, suggesting that the end of the month may not be the best time to make regular investments.
I wonder if this is just a passing phenomenon or whether there is a more general trend for markets to rise at month end. Fairly simple to research if the answer's not known already.
Daisy42
LD-AIM = GU-AIM
"LD-AIM can be used to give you bigger trades with the same number of holdings or allow you to diversify more than you would be able to otherwise." (See #35826)
I'm attracted to the idea of using LD-AIM to gear up trading (hence GU-AIM for Geared Up AIM!).
If I've understood correctly, it would work something like this:
You have $10,000. Under AIM BTB you would put $5K into equities and keep $5K as cash reserve. In LD-AIM you would only put $2,500 into equities, keeping $7,500 as cash. This $7,500 can now be taken to represent 50% of a virtual AIM account of $15,000, and the virtual equities starting amount, and Portfolio Control, become $7,500. You run AIM according to these virtual amounts, updating the virtual current equities value with price movements, generating buy and sell recommendations, subject to 5% SAFE and MT of 10%, which are then implemented in full with real money.
Daisy
Hi Conrad,
The 'fine tuning' I wrote about is all based on the standard AIM system, and just altering the values from Lichello's standard settings (a) overall, based on the relative volatility of each security, and (b) the balance between buy and sell resistance, based on a quantified view of the market situation / risk level for each security.
Daisy.
ATR
Thanks for the suggestion. In my case I am using open-ended mutual funds which are only priced on a daily basis, so proper ATRs cannot be calculated. I use volatility data from Trustnet, which does change on a monthly basis.
Daisy
SAFE settings
My SAFE settings are now determined algorithmically.
All SAFE settings are rounded to the nearest whole number.
Firstly, the size of SAFE is determined by the relative volatility of the holding. I have assumed a setting of 7 for the broad market (S&P 500), and the setting for various funds is determined from their 1 year volatility as compared with that of the S&P 500, with more volatile funds having larger SAFE settings. Bond funds can have quite small settings. These figures are updated monthly.
(It occurs to me that using the S&P 500’s volatility as a constant, even though it obviously isn’t constant, might be inappropriate, and a fixed standard would perhaps be more logical.)
Secondly, the split of 2xSAFE between the buy and sell sides is determined by where the fund is in what I perceive to be its range. At present the 1999 and 2007 tops and 2003 and 2009 bottoms provide a relatively clear cut way of determining this, with a more recent high being used if a higher one has been reached. I update these weekly, and can do so more frequently if there are any sudden large changes.
On the above basis I currently have a sell SAFE of 0 for my UK mid-cap index fund holding, which is virtually back at its 2007 high, and I have just executed a 6.5% sale of that fund using this setting. The buy SAFE for this fund is currently 15.
Settings for some other funds are as follows:
Global emerging markets index: Buy 13 Sell 6
Gold mining stocks fund: Buy 15 Sell 6
Gilts index fund: Buy 3 Sell 1
Index-linked gilts index fund: Buy 7 Sell 1
American equities index fund: Buy 7 Sell 3
European equities index fund: Buy 10 Sell 9
Japanese equities index fund: Buy 1 Sell 10
Pacific equities index fund: Buy 14 Sell 3
I hope that this fine-tuning of the standard SAFE settings will be appropriate to the individual funds, and also provide appropriate adjustments for market conditions – but I’m open to constructive criticism!
Daisy
Sell signal?
Just received a pamphlet in the post from Fidelity,"Are equities about to turn the corner?". It doesn't say in which direction, but the text slopes upwards! Could be a sell signal!
Daisy.
Hi Praveen,
Thanks. Yes I understand. My situation is a bit different. I am not adding to the total on an ongoing basis, but managing a lump sum. I suppose you might say well, when the cash pot exceeds 30% sufficiently, you can buy into another stock or fund. The added complication is that my funds are distributed between numerous relatively small, annual, tax-free accounts (I'm UK-based). I can take money out of them, but not put any back in, so I have to operate them independently and separately. Hence my thought about increasing the constant value figure for each in line with general inflation. (I also look at various constant and variable ratio approaches for them and in fact I'm operating some of them as AIM accounts.)
Daisy.
Hi Praveen,
Thanks. Yes, I understand that, I just thought even with stocks perhaps it is simpler to think in $ terms and only convert that into number of shares (rounding up or down) when you come to implement the actual trade.
It's not a major point!
Daisy.
Would the Stock Trading Riches system be improved by using Constant REAL Value rather than Constant (Nominal) Value? It would seem appropriate to increase the target value in line with inflation and rebalance to that.
Daisy