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Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Not a recommendation, just a observation, free download https://www.gyroscopicinvesting.com/forum/download/file.php?id=3343 of Seth Klarman's Margin of Safety book that literally sells for thousands of dollars online due to being quite rare (as only a few hundred copies were ever printed). Book pages 217 onward align well with AIM, average-in rather than lump-in, selling is normally hard to do - unless you have AIM nudging you :)
Clive
Hi Toofuzzy
AIM is a form of over-rebalancing style, which will benefit when there's a tendency towards mean-reversion. Such tendency has been known since the 1930's, mean reversion--under the name "reversals"--was reported in a peer-reviewed academic journal in 1937: Cowles 3rd, Alfred E. and Herbert E. Jones (1937). "Some A Posteriori Probabilities in Stock Market Action". Econometrica 5 (3): 280–294).
https://bogleheads.org/forum/viewtopic.php?p=7517697#p7517697
Generally there's a tendency towards months to a couple of years of momentum, inclination towards mean reversion after 2 - 5 years. AIM is likely a good a choice as any in order to play that. For better prospect of 'reversion', index funds are better than individual stocks. Sector or main stock index funds are much less inclined to fail.
Clive
PS same namesake (Alfred Jones) as sourced my userid (LS7550). But that was Alfred Winslow Jones whereas the above paper is Alfred E Jones. Alfred Winslow Jones is attributed as being the first hedge fund manager, both long and short (LS) in around 75/50 respective proportions.
Hi Jake
Investing is easy. Pick some assets you wouldn't mind holding long term, and buy the dips. One of the greater risks is what sits between the computer screen and back of chair. Many opt to buy when high (greed), sell when low (fear). Oddly might do the complete opposite with stocks to what they do when grocery shopping
AIM is a mechanical method to aid in being a better investor
You can even pre-calculate next AIM trades and place good-till-cancelled orders to yet further implement better behavior.
AIM will typically start flagging buy trades after around a 25% drawdown/pullback. Combined two lots of 10% SAFE + 5% minimum trade size amount.
Start with 33% in stock, average the remainder 66% into stocks over the next decade or so, each at a 25% discount price, and after 30 years you would have averaged around 90/10 stock/cash, where most of the stock (two thirds of shares) were purchased at a 25% discount. Whilst you also reduced the risk of having started by lumping in at a bad time.
Funds/ETF's are less inclined to go broke than individual stocks so are more preferable. Don't worry about cash/reserves as if that's all deployed sooner rather than later so more the better. Yes stock prices may continue down further, however you're better positioned than most others in having averaged in at a lower price.
Clive
Hi Jake
The following HTML is pretty much my AIM for heirs calculator. A simple once/year AIM of the Dow/Gold ratio (Dow index divided by price of gold per ounce) - that then advises what stock/gold percentage weightings to rebalance your actual portfolio to at the start of each year. i.e. AIM and (maybe) rebalance once/year and you're done for the year.
Historically that worked OK at scaling up/down stock exposure in a timely manner, yielded a better overall outcome compared to fixed/constant weightings.
Copy the text from the first html tag to the bottom, paste that into a text file and save with a .html filename suffix and then clicking on that file should open it up in a browser. There's a inline image towards the end that shows the historic year start %gold weightings back to 1932. Note how in 1980 when gold was high it indicated no gold, in 1999 when stocks were high it indicated low stock weighting.
Sometimes there's a residual flaw, where straight after one trade AIM would have you trade immediately again, so best to click the calculate button several times until it indicates 'no action'
Good practice to keep a written note of the Portfolio Control, Number of shares and AIM Cash values, so if/when your PC blows up you have a offline record of the values.
Clive
<html><head>
<title>Calculator for AIM</title>
<meta name="KEYWORDS" content="investment, Lichello, AIM">
<meta name="DESCRIPTION"
content="Calculators for Robert Lichello's AIM.">
<script language="javascript">
function figure() {
/* calculate market order */
pc= document.f1.PC.value*1;
ns= document.f1.NS.value*1;
p= document.f1.P.value*1; /* dow/gold value */
bs= 0.1;
mp= 0.05;
ss= 0.1;
CASH=document.f1.CASH.value*1;
if ( p > 0 ) {
sv = p * ns;
/* alert("stock value is "+sv); */
shareflag = "yes";
}
else
{
shareflag = "no";
}
if (sv >= pc ) {
Y= (sv - pc)-(sv*ss);
if (Y >= (sv * mp)) {
if (shareflag == "yes") {
shares= Math.round(Y*100/p)/100;
sharetext = "Number of shares reduced by " + Math.round(shares) +
"\nIncreased AIM cash value by " + p*Math.round(shares) +
"\nLeft Portfolio Control as-is";
document.f1.NS.value = document.f1.NS.value - Math.round(shares);
document.f1.CASH.value = Number(document.f1.CASH.value) + Number(p*Math.round(shares));
shares = shares - Math.round(shares);
CASH = document.f1.CASH.value;
}
else
{
sharetext = "";
}
Y=Math.round(Y);
alert(sharetext);
}
else
{
alert("no changes required");
document.f2.NS.value = document.f1.NS.value;
document.f2.DG.value = document.f1.P.value;
document.f2.AC.value = document.f1.CASH.value;
tv=document.f2.NS.value * document.f2.DG.value;
tv= Number(tv) + Number(document.f2.AC.value);
document.f2.TV.value = tv;
document.f2.GPC.value = Math.round( 1000 * CASH / tv ) / 10;
document.f2.SPC.value = Math.round( 1000 * ( 1 - (CASH / tv))) / 10;
return;
}
}
else
{
if (pc > sv) {
X = ( pc - sv ) - ( sv * bs );
if (X >= (sv * mp)) {
if (shareflag == "yes") {
shares= Math.round(X*100/p)/100;
if ( CASH > (p * Math.round(shares)) ) {
sharetext = "Number of shares added " + Math.round(shares) +
"\nReduced AIM cash value by " + p*Math.round(shares) +
"\nIncreased Portfolio Control by " + p*Math.round(shares)/2;
pc=Number(pc) + Number(p*Math.round(shares))/2;
document.f1.PC.value = pc;
document.f1.NS.value = Number(document.f1.NS.value) + Number(Math.round(shares));
document.f1.CASH.value = document.f1.CASH.value - p*Math.round(shares);
CASH = document.f1.CASH.value;
shares = Number(shares) + Number(Math.round(shares));
}
else
{
sharetext = "Insufficient AIM cash to fully cover " +
"the purchase of indicated shares,\nso added " +
Math.round(CASH / p) +
" shares,\nreduced AIM cash to zero\n" +
"and increased Portfolio Control by " + (CASH/2) ;
document.f1.NS.value = Number(document.f1.NS.value) + Number(Math.round(CASH / p));
document.f1.PC.value = Number(document.f1.PC.value) + Number(CASH/2);
document.f1.CASH.value = 0;
CASH = 0;
shares = document.f1.NS.value;
}
}
else
{
sharetext = "";
}
X=Math.round(X);
alert(sharetext);
}
else
{
alert("no changes required");
}
}
}
document.f2.NS.value = document.f1.NS.value;
document.f2.DG.value = document.f1.P.value;
document.f2.AC.value = document.f1.CASH.value;
tv=document.f2.NS.value * document.f2.DG.value;
tv= Number(tv) + Number(document.f2.AC.value);
document.f2.TV.value = tv;
document.f2.GPC.value = Math.round( 1000 * CASH / tv ) / 10;
document.f2.SPC.value = Math.round( 1000 * ( 1 - (CASH / tv))) / 10;
}
function figure1() {
// calculate hold range
pc= document.f1.PC.value*1;
ns= document.f1.NS.value*1;
ss= 0.1;
bs= 0.1;
mp= 0.05;
i = pc/(1-(mp+ss));
i = Math.round(i);
j = pc/(1+(mp+bs));
j = Math.round(j);
k = i*mp;
k = Math.round(k);
l = j*mp;
l = Math.round(l);
m = i/ns;
m = Math.round(m*100)/100;
n = j/ns;
n = Math.round(n*100)/100;
o = (i*mp)/(i/ns);
o = Math.round(o*100)/100;
q = (j*mp)/(j/ns);
q = Math.round(q*100)/100;
alert("Next AIM directed trades occur above/below\n\nUpper Dow/Gold ratio of "+m+
"\nLower Dow/Gold ratio of "+n );
}
</script>
</head>
<body>
<h2 align="center">
<font color="#FF0000">
AIM ADVICE CALCULATOR
</font>
</h2>
<center>2022 year end PC 11437.7825 #S 641 AIM CASH 10567.853</center>
<p></p>
<form name="f1">
<table cellspacing="0" cellpadding="0" width="50%" align="center" border="2">
<tbody>
<tr valign="center" align="left">
<th>Name</th>
<th>Value</th>
</tr><tr valign="center" align="left">
<td>Portfolio Control </td>
<td><input name="PC" value=11437.7825> </td>
</tr><tr valign="center" align="left">
<td>Number of Shares </td>
<td><input name="NS" value=641></td>
</tr><tr valign="center" align="left">
<td>AIM Cash </td>
<td><input name="CASH" value=10567.853></td>
</tr>
</tbody></table>
<div align="center">
<input onclick="figure1()" type="button" value="Reveal Dow/Gold ratio HOLD ZONE levels for these values">
</div>
<p></p>
<center>
<h4 align="center">Enter the current Dow stock index divided by current Gold price (in US Dollars)</h4>
<table cellspacing="0" cellpadding="0" width="50%" align="center" border="2">
<tbody>
<tr valign="center" align="left">
<th>Name</th>
<th>Dow/Gold ratio Value</th>
</tr><tr valign="center" align="left">
<td>Dow/Gold ratio
</td>
<td><input name="P"> </td>
</tr>
<!--
<tr valign="center" align="left">
<td>Stock Value </td>
<td><input name="SV"></td>
</tr>
-->
</tbody></table>
<P></P>
</form>
<p><p></p><center>
<hr>
<p></p>
<h3>With Robert Lichello's AIM you :</h3>
</p><p>
Start with an investment portfolio worth $SV = Stock Value ... <br>
and some cash. (The cash is in case AIM says "buy more".)<br>
You maintain a PC = Portfolio Control (which increases with each Buy).<br>
Initially, PC = SV, your initial investment portfolio.<p></p>
Each month you check your SV.<br>
If, subsequently, your SV is $X larger than PC, say X = SV - PC, then you Sell: Y = X - 0.1*SV<br>
(provided Y exceeds a minimum Dollar Amount of 5% of SV).<br>
If your SV is $X smaller than PC, say X = PC - SV, then you Buy: Y = X - 0.1*SV<br>
(provided Y exceeds a minimum Dollar amount of 5% of SV).<br>
Each time you Buy $Y worth of stock, you increase your Portfolio Control by 0.5*Y.<br>
(PC is always left unchanged after you Sell shares)</p></p>
We've adapted the former AIM calculator as we AIM the Dow/Gold ratio once yearly<br>
to identify a appropriate amount of stock/gold weightings to start each year with.<br>
We only need to keep a record of the PC, number of shares and the AIM cash value,<br>
that we can then load into this calculator - that indicates if we need to adjust those figures.<p></p>
The total AIM portfolio value is the number of shares x dow/gold ratio summed with<br>
AIM cash value. Dividing the AIM cash value by that total portfolio value<br>
identifies the actual percentage gold weighting we should rebalance our portfolio<br>
to, where the remainder portfolio value is invested in a US stock accumulation fund/ETF
<P></P>
<form name="f2">
<table cellspacing="0" cellpadding="0" width="50%" align="center" border="1">
<tbody><tr>
<th># Shares</th>
<th> x Dow/Gold</th>
<th> + AIM Cash</th>
<th> = Total Value</th>
</tr>
<tr><td>
<input name="NS" readonly></td><td align="center"><input name="DG" readonly></td><td align="center"><input name="AC" readonly></td><td align="center"><input name="TV" readonly></td>
</tr>
<tr><td align="center">Stock weighting % =</td><td><input name="SPC" readonly></td><td align="center">Gold weighting % =</td><td><input name="GPC" readonly></td></tr>
</tbody></table>
</form>
<div align="center">
<input onclick="figure()" type="button" value="CALCULATE">
</div>
<P></P>
Note that AIM can encounter what is called a residual flaw, where immediately after<br>
calculating another additional (trades) might be indicated against those new settings<br>
We suggest clicking the calculate additional times until the calculator indicates<br>
"no changes required (or indicates no AIM cash remaining)"
<p></p>
After aligning your actual real portfolio stock/gold weightings to the indicated weights<BR>
<font color=red>DON'T FORGET TO SCROLL BACK UP TO THE TOP OF THE PAGE AND RECORD THE<br>
PORTFOLIO CONTROL, NUMBER OF SHARES AND AIM CASH values</font><br>
write them down and store that safely for next years review.
<p></p>
In 1980 the Dow/Gold ratio was near 1, it took just a single ounce of gold to buy<br>
a Dow stock index share (or a single Dow stock index share bought a ounce of gold).<br>
In 1999 the Dow/Gold ratio was around 40, it took 40 ounces of gold to buy a single<br>
Dow stock index share (or a single Dow stock index share bought 40 ounces of gold).<br>
The Dow/Gold ratio might be considered as being a relative value indicator, in 1980<br>
stocks were relatively inexpensive/gold was relatively expensive; In 1999 stocks were<br>
relatively expensive, gold was relatively inexpensive. We let AIM use the Dow/Gold<br>
ratio as a indicator of a reasonable year start weighting/allocation to stocks and<br>
gold and where historically that yielded a better 30 year SWR outcome and higher<br>
average reward than if we just rebalanced yearly back to a fixed target weighting<br>
of stocks and gold.
<hr>
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Hi Rickson
I prefer a variation to the method proposed in the book when adding a lump sum into a existing AIM. Adding the lump sum in proportion to the current stock value/cash weightings as well as updating Portfolio Control by the value of the newly added shares, and of course increasing the number of shares held in reflection of the added shares.
$10,000 AIM value, $6000 stock value, $4000 cash. Add $2000 and 60/40 split that between additional/new shares and cash, so $1200 into stock, $800 into cash, increase AIM's record for number of shares held to account for the newly added shares and increase Portfolio Control by $1200.
Clive
Hi Tom. 20 minutes into this video (that I found by a linked video presented at the end of that last link I posted) ...
Hi Tom. 0 to 60 in 1.4 seconds?
Hi Toofuzzy
Thanks for the pointer. Not sure that's available from over here, as is the case for many/most US funds nowadays, and where when you might/can they typically are taxed more punitively. All part of general global de-dolarization/de-globalization.
Clive
Hi Tom
I see that GBTC, basically a stock/fund whose value is mostly comprised of bitcoins such that the share price changes somewhat reasonably reflects Bitcoin price changes, for 2016 to recent had a 28% CAGR. In contrast AIM of GBTC, monthly reviews with classic AIM settings, yielded a 32% XIRR.
As you know XIRR is like CAGR but where it accommodates irregular cash flows - as is the case for AIM, basically reflects the annualized gain achieved relative to the actual amount of $$$ invested (that varies over time due to AIM trades). If you had another AIM that bought as one sold, and vice versa then the weighted XIRR's might reasonably reflect your actual gains.
For gold since 1968, weekly reviews classic settings the XIRR was 20%, whilst gold just bought and held yielded a 8% CAGR. Add in yet other assets/stocks such that your cash tends to remain continually fully deployed and XIRR measures will tend to reflect your actual overall portfolio CAGR.
I don't know the actual correlations of Bitcoin to other assets, but there is a prospect that in some cases AIM of bitcoin might be buying when another AIM is selling and vice-versa.
IIRC Steve (Grabber) used to pretty much run his AIM's that way, as one sold look to deploy the cash sale proceeds into another AIM that was signalling a buy. In effect running many AIM's on paper, not real money, alongside real AIM's where real money was actually invested. AIM tends to do a pretty decent job of achieving reasonable XIRR rates of returns.
Somewhat Buffett style, where he considers his main role to be a asset allocator i.e. find appropriate places into which cash thrown off by other parts of the business/portfolio can be deployed. Like AIM'ers, he too also tends to not deploy all of cash reserves, primarily because his business model (insurance) might have sudden unexpected call upon large amounts of cash. For others with less need to have instant/large cash reserves there may be little need to hold much/any cash. The hardest part is finding appropriate investments with inverse correlations. If everything is down and AIM is flagging 'buy, buy, buy' and nothing is selling, then you can't actually take advantage of those opportunities. Also as part of that as a asset allocator you also have to consider the limits of how much capital you might deploy into any one asset such as Bitcoin. For Bitcoin IMO it would be unwise to invest any more than a relatively small amount, perhaps no more than 5% of your total portfolio value at most.
PV
I'm not really a smart phone user, more a laptop'er, nor do I use MS, but its nice to see a AIM app for those that do.
Clive
Hi Toofuzzy
Hi Tom. Monthly vs Yearly reviews
For a 1985 start year, setting AIM initial %CASH to the same as the longer running (older history) yearly AIM, to level the field, and rolling forward from there and the monthly reviewed version of AIM of Dow/Gold ratio progressively pulled ahead, for a while before seeing a spike down and then subsequently catching up and over-taking the yearly AIM again.
Overall the log linear regression (exponential trend line slopes) were near equal. The average of the yearly changes was higher for the monthly reviews, but so also as the standard deviations in yearly changes. Comparable rewards with higher volatility = lower risk-adjusted reward for monthly reviews compared to yearly reviews.
Monthly reviews was much quicker to throw away its 'cash' (gold) reserves into declining stock prices than was yearly reviewed.
Clive
AIM vs constant weighted 30 year outcomes
The dynamics of AIM of Dow/Gold as a indicator of weightings and trade times, reflected into 30 year 3% SWR outcomes (final portfolio value after 30 years as a multiple of the inflation adjusted start date portfolio value) for both US and UK data/portfolios indicates that AIM sometimes just bettered constant weighted 50/50 stock/gold (yearly rebalanced) by a little, sometimes by a lot
but AIM was always as good as or better than constant weighted.
That used the same AIM of dow/gold indicated %cash (gold weighting) for both US Dollar and UK Pound data, holding US stock and gold, and the outcomes from both suggest that the times when AIM was significantly better somewhat aligned in both markets. 1920's and 1960/1970's decades. Which were times when the Dow/Gold ratio transitioned from relatively high to low levels. Being 30 year measures the data only runs up to the early 1990's start years (that run up to present 2020's years). The late 1990's was also a time of very high Dow/Gold so is perhaps indicative that as forward time dots/measures are added to the right of those charts we may very well see cases of AIM having significantly outperformed constant weighted. Perhaps with a peak centered around the 2009 stock lows and perhaps extending out to recent start years of more modest relative out-performance. A wild guess, but where perhaps AIM started in more recent times might end 30 years with around 1.5 times more than constant weighted.
Very much doubt I'll be around to see that confirmed or not as I'm borderline graduating into the 'old' category (alongside OldAIMGuy, old-John) myself.
But as Einstein said, its all about relativity ...
so ...
Young-Clive :)
[PS however they do say you're as old as you feel, and recently I've been feeling pretty old (stairs and knees)].
For yearly reviews the simplicity is nice
We just need to record the PC, #S (number of shares) and the AIM 'CASH' values, and then each year just look up the current Dow and Gold prices, divide the Dow figure by the gold price as our AIM 'Share Price' (SP) value and use the AIM calculator https://investorshub.advfn.com/boards/read_msg.aspx?message_id=88637795
For the last couple of years no action was indicated, so job done for the year.
In other years a buy or sell trade will be indicated, in which case we do the AIM math, identify the new %CASH that AIM is indicating, and rebalance our stock/gold portfolio to where the percentage of gold is around the same as the AIM indicated %CASH value. That will result in PC maybe being changed (if a Buy) or otherwise left as-is, a new #S and a new %CASH AIM values being recorded/updated in readiness for the next review a year later.
Or alternatively just do it on paper. Peter Ponzo (sadly no longer with us) outlined the basics here https://www.gummystuff.org/AIM.htm
In return that will scale up/down stock/gold weightings in reflection of the Dow/Gold ratio, where generally that was better than just a fixed constant weighting of stock/gold being rebalanced to each year. For instance had us all out of gold/all in stock in the 1980's when gold was relatively expensive, a single ounce of gold buying a Dow stock index share, more into gold/less into stock in 1999 when the Dow/Gold ratio was up at 40 levels (a single Dow index share bought 40 ounces of gold). As per that image I posted earlier
Might still broadly average 50/50 stock/gold, but where at times held 0% gold, other times held near 80% gold. And where historically at least those dynamics were better than just a fixed/constant weighted choice such as constant 50/50 weightings, and yielded higher rewards, and tended to do so with less risk such as lower (not as bad) drawdowns (which tended to also improve the likes of how much SWR (income) could have been drawn).
And all that you need is a little piece of paper with your
PC 9954
#S 569
CASH 15583
or whatever figures tucked into your wallet.
At times you may hear breaking news stories of stock prices collapsing or gold prices soaring or whatever, at which times you may like to monitor activities more closely and potentially calculate AIM trade signals if you think things (events) may be at a near peak/trough turning point. Buy from the scared, sell to the greedy as Tom says, but where its judgemental as to when they are the most scared/greedy.
Clive
Hi old_john
Hi Tom
When the solution is simple, God is answering -- Albert Einstein
I'm no Einstein, far from it, but I do like simplicity.
Clive
AIM Dow/Gold ratio
Starting from 1925, apply AIM once yearly to the Dow/Gold ratio, AIM settings of 10% SAFE, 5% of cash value minimum trade size. From that we identify years where a trade occurred and what level of %cash that adjusted to.
Use that as a paper AIM, where %cash indicates how much gold weighting to hold, and when to rebalance to that revised gold weighting i.e. in years when AIM actually made a trade.
Applied to the Total Stock Market (TSM = similar to S&P500) and gold, where gold was T-Bills pre 1934 (as gold was money back then, and you could deposit that money in return for interest), and the outcome was pretty good, averaged 44% gold, but at times held as little as 0% gold, at other times around 80% gold. Broadly yielded total returns that compared to TSM
and did a reasonable job of scaling up/down gold weighting in reflection of changes in the Dow/Gold ratio
and was relatively safer in the sense of enduring lower drawdowns
In terms of 30 year 4% SWR outcomes, at times when 100% TSM struggled, AIM did better and vice-versa
A reasonable choice therefore might have been to run two portfolios, one for TSM, the other for dow/gold ratio AIM, initially 50/50 weighted into both, and then just left to run separately. In which case the final combined outcome was decent, 4% SWR never ending with less than the inflation adjusted start date portfolio value still available at the end of 30 years. The following chart shows the multiple of inflation adjusted start date value that remained at the end of 30 years, so a value of 1.0 = 100%, 2.0 = twice a much (in inflation adjusted terms) ...etc. In the best case you ended with 8 times more in inflation adjusted terms than what you started with 30 years earlier after 30 years of 4% SWR withdrawals. Great cases are great, but for most its the worst case outcomes that are the main concern and diversifying to dilute down the worst case risk worked out well when that diversification involved initial 50/50 weightings into TSM and AIM
Some retirees use a 4% SWR guide as the amount that they might draw, and where typically that is measured over 30 year periods and where the worst case left nothing remaining at the end. The above however is indicative that you could have applied a 4% SWR with in effect 2% being provided by AIM of Dow/Gold, and the other 2% from TSM, and always having ended with your portfolio value still intact.
SWR of 4% is to initially draw 4% of the portfolio value as income in the first year, and then adjusted that $$$ amount by inflation as the amount drawn as income in subsequent years, so a regular inflation adjusted income.
Clive
AIM Dow/Gold Ratio
For once yearly realignment (rebalancing) at each calendar year end, a AIM of the Dow/Gold ratio, with 0% SAFE (infrequent reviews so we don't need any 'slowing' of cash-burn/stock-purchase rate) and for data since 1968 (relative to a AIM original start date of 1896) ...
... and AIM has done a pretty decent job of aligning indicated %cash (gold) weightings to the Dow/Gold ratio
Robert Lichello mentioned Harry Browne in his book. Basically Harry was what some describe as a gold-bug back in the 1960's/1970's and was heavily into gold (and made considerable gains) during the those years. Harry subsequently devised the Permanent Portfolio as a means to diversify that heavy gold concentration after the large 1970's gains in gold. It was sensible to have been gold-heavy during those years, less so after the large gains, such that he subsequently diluted down that high gold concentration into other assets (stocks, bonds, cash ...etc.) as a means to better preserve that accumulated wealth.
Similarly in the late 1990's stocks were 'expensive', it made sense to water down your exposure to stocks. The Dow/Gold ratio (Dow index value / price of gold) has historically provided a reasonable indicator of stock and gold highs and lows, and AIM did a good job of mapping the Dow/Gold ratio to a actual indicated appropriate %gold level. Late 1920's prior to the Wall Street Crash for instance AIM of Dow/Gold was indicating similar levels of %gold as in 1999 (high gold weighting, lowish stock weighting).
Rebalancing a stock and gold blend portfolio once/year in reflection of the AIM of Dow/Gold indicated %gold weighting resulted in a better outcome than either 50/50 yearly rebalanced stock/gold, or 100% stock. Overall it directed to around 25% average gold but at times held 0% gold, at other times around 70% gold. For those in a withdrawal phase (retired) a 3.33% 30 year SWR was supported for all 30 year periods since 1896, you both had your money returned via 30 yearly inflation adjusted instalments, and also ended with the same or more as the inflation adjusted start date portfolio value still available at the end of 30 years. Or in the worst case supported a 4.5% SWR, leaving nothing left after 30 years in that worst case outcome, but on average left 2.5 times more in inflation adjusted terms at the end of the average 30 year case outcome.
More recently, start of 2023 and AIM was indicating 16% gold weighting at year start, down from 22% at the start of 2022. In effect is sayings its neither a particularly great time for stocks (don't bother holding any gold), nor a bad time for stocks (hold a relatively high chunk of gold), is simply suggesting mediocre stock times, in reflection of the Dow/Gold ratio level being somewhat average.
Clive
Hi Toofuzzy
Hi Steve
Hi Adam
Hi Tom
AIM S&P500 real price since 1871
Started 2023 with 75% cash being indicated !!! I suspect that high level is somewhat a reflection of US taxation policy changes in the mid 1980's to incite more of earnings being retained rather than paid in dividends - somewhat accelerating price appreciation ??? Or maybe a wise AIM decision :) When it seems quite popular at present for some to be loading heavily into TIPS/iBonds ladders that are yielding positive real yields following large declines in bond prices in 2022
Clive
Lumping in/out
Elsewhere on another board, yet another periodically highlighted how ...
InvestorsHub web site was previously just about tolerable, but in more recent form (not sure as from when as I don't visit that often nowadays) its almost beyond usable for the ageing eyes/laptop visitor that employ larger fonts.
A top of page video detaches to place itself across the bottom/middle screen region when you scroll down on nearly every page/click. Header section takes up most of the top half of screen. And where things simply don't scale well when a non micro-text default is being used.
I guess maybe OK on a desktop/larger screen, but I mostly use a laptop of just modest screen size.
Apologies if I don't respond to posts, not intending to be rude/ignoring, rather its just a case of (dis)comfort of usage.
Clive
Want to Beat the Stock Market? Avoid the Cost of ‘Being Human’
https://www.wsj.com/articles/active-vs-passive-index-fund-beat-the-stock-market-58e8bd83?st=0v7d1rmgtuwozx0&reflink=desktopwebshare_permalink
Applying the same to US data, VISVX / gold ratio, and levelling the AIM %cash (gold) to the same as the UK version at the start date ...
... worked well
The mid section third (cash) chart would have dropped closer to 0% has a 5% MTS been used instead of the 10% MTS I set (fewer/larger 'trade' frequency).
Clive.
... on second thoughts !!! ...
The stock/gold ratio at the start date was pretty low and as such it would have been more sensible to start with a relatively high stock weighting/low gold weighting. Adjusting for that (to a 25% initial gold weighting) and AIM excelled constant weighted, averaged near 40% average gold over the total period, and to more recent lagged 100% all-stock total returns by just 0.7% annualized. It did lag all-stock in the 1990's big stock up-run, but has subsequently closed down that gap.
UK FT250 is much like US small cap value and I've noticed that partners well with gold, tending to both have similar levels of volatility and a degree of multi-year low/inverse correlation. US data for SCV/gold is also noted as giving 100% Total Stock Market a good run for its money, with less risk (portfolio volatility) PV US example for the similar years. And considerably better if you adjust that PV example start date back to 1972 (the oldest data that PV has available).
Monte Carlo sim was also significantly better
MC for 60/40 SCV/gold 4% 30 year SWR and ditto for 100% Total Stock Market MC suggests differences of >99% success rate compared to 86% success rate respectively.
Indicative of how the likes of the vWave as a indicator of initial loading/weightings can make a relatively large overall difference in outcome.
Clive
AIM of stock/gold ratio
Similar to the Dow/Gold ratio I loaded UK FT250/gold ratio (midcap stock index price to gold ratio) and AIM'd that with default settings (initial 50% 'cash, 10% SAFE, but did opt for a higher 10% minimum trade size).
For monthly reviews ...
Using AIM indicated %CASH I set that as each months percentage gold weighting, the rest being in stock (total accumulation index that includes dividend being reinvested), and that broadly averaged 50% AIM cash having been indicated. I then compared that to the monthly constant 50/50 stock/cash total returns.
Generally a high Dow/Gold ratio (stock/gold ratio) is suggestive of high stock prices/low gold prices, and equally a low ratio suggests low stock prices/high gold prices. Adjusting stock and gold weightings in reflection of that as directed by AIM resulted in inconclusive overall benefit/or-not. For the earlier years that had relatively high AIM %cash (and hence gold weighting), but then in around 2009 the stock/gold ratio dived and had low/no gold being suggested (all stock), a great time to have rotated into that (Financial Crisis lows).
So broadly lagged, but then jumped to lead. Overall is winning, to the more recent date, but could be argued either way as having been good/not-so-good.
At one point the AIM directed / constant weighted was lagging by a 0.8 factor (so in total having a -20% lower $$$ portfolio value). As of recent that has spiked to it leading by around a 1.4 factor (so in total having a 40% higher $$$ recent portfolio value compared to constant weighted.
Pushed to approximate recent relative values and I'd agree with AIM, with FT250 stock index values being relatively low, gold values being relatively high, so AIM in that sense has made a reasonable call, given no more than just historic prices data.
Just thought I'd share the observation.
Happy Easter to all
Clive.
Hi Tom
This is a PV example (US data) comparing 20/80 SPXL (3x leveraged S&P500) and IEF (7 - 10 year treasury ETF) to that of 60/40 SPY/IEF
On the basis that ETF's could fail, potentially along with their custodian with them - perhaps due to some complex fraud, you might hold Treasury bonds directly instead of IEF, which has the benefit of being fully protected, no matter how much $$$ is invested.
Similar overall reward, but with 80% in the safest asset (Treasury bonds), instead of just 40%.
In that link I left it set at yearly rebalanced. In practice the higher the leverage the more often you should rebalance. 2x and once/year is generally sufficient, 3x and 6 monthly is a reasonable choice. 10x and you're looking at monthly rebalancing (basically what Zvi Bodie does, where he holds monthly Traded Options that reflect 10x leverage, so for instance for a conventional 60/40 stock/bond allocation he'd instead hold 6% in 10x leveraged stock exposure, leaving 94% in safe (treasury) bonds).
Clive
RE: Leveraged ETF's
I exclusively use leveraged ETF's - but from a counter-party risk reduction angle rather than scaling up exposure. For example a third as much in a 3x as would be held in a 1x. Nowadays (retired) wealth preservation is more important to me and since the 2008/9 financial crisis there's been greater tendency towards bail-in's ... where investors/savers are increasingly more likely to fund the bail out of banks/custodians in the event of failures, rather than taxpayers. Shares are commonly pooled, not actually yours, just a record of your name/share of that pool. Bank deposits aren't yours, again just your name recorded. Single bank/broker (custodian) risks are low, but do periodically present. US protections are better than for the likes of me (non-US) such that I keep counter-party risk down to below 20%, as such a loss whilst unpleasant is no different to what a portfolio may lose in some years naturally.
Leverage ETF's do tend to (proportionately) attenuate downside, amplify up-side, due to their daily rebalancing (reduce-low/add-high). The 'trick' is to play/work the trends/turning-points. IIRC Ocroft some years back presented a method whereby he'd delay actual trades until a existing trend had passed, for instance if AIM signalled sell, then he'd wait for subsequent sequential AIM sells to end before actually making a trade. Looking to place larger amounts traded at just past the peak (or just past the trough for sequential buys). I don't know how effective or not that was, nowadays I don't really trade other than via directed withdrawals.
Clive
1929, in particular a September start month was conceptually a worse start year for AIM, particularly if you were using a 4% SWR. Basically burned through cash quickly to leave you all-in with further and pretty deep declines yet to come. AIM pretty much remained at all-in thereafter for the full 30 year term. However even though all of cash had been deployed within a year or so, that meant you had around 40% more shares than a investor who had lumped 100% into shares from the start, as many might have been tempted to do around that time given how even shoe-shine boys were talking-stocks and many were borrowing as much as they could to buy stocks ... in the lead up to the Wall Street Crash.
That AIM, that was near-as all-stock (but with 40% more shares) went on to do OK, basically supplemented dividends by selling some shares to pay the SWR and carried a retiree through 30 years OK, even at a 4% SWR rate. Only had around 16% of the inflation adjusted start date amount available at the end of 30 years, but still succeeded in a 30 year 4% SWR objective.
The 3.33% SWR was considerable more successful, got back into AIM trading/some-cash in later years and went on to end 30 years with having more than the inflation adjusted start date amount still available.
Of course AIM hadn't been invented back then, at the start of 1929 Robert Lichello was only 2 and a quarter years old (kids like to count part years as for a 1 year old a year is a lifetime :)
Clive