Thanks Clive,
Re: AROC............................
This is an interesting way of viewing things. For years I've said that the yield on the cash was a pleasant addition to AIM when available. That said, the return on each "round trip" of the cash through the system was significantly greater.
For standard "by the book" AIM each time cash flows into equities and back out to cash should generate an approx. 30% LIFO gain. If the minimum order is just 5% of total shares the 30% gain is diluted by the remaining shares. It would represent about 1.5% improvement in the total system (30% x 0.05).
It has always been my feeling that the LIFO gain allowed the cash to rest in between usages with very little downside for the portfolio. Even at 5% annual yield on cash, that would mean the cash could 'rest' for nearly 6 years before time-value started to detract from returns.
The more often the cash is recycled the better the total return overall.
Now, that's with minimum order size and strictly a round trip from a buy to a sell. Assuming AIM-High, the LIFO would be closer to 40%. Probably not as many round trips, but healthy profit each time.
Going the other direction and reducing SAFE and other constraints to something less than 'by the book' one can generate more LIFO events most likely. However, the gain might not be so generous. The sweet spot is when the number of cyclical round trips times the LIFO gain generates the best total return. For a long term bond fund that could be one type of setting and for a cutting edge biotech, quite different settings.
I tend to use something closer to AIM-High with long cycle investments like LT bonds. Back when I was still investing in single company stocks, I used a variety of settings based upon my best guess as to the sweet spot in activity and gain. ETFs move more slowly than do individual company stocks most of the time, so they have their own settings.
SPY being more "fund-like" tends to not offer as many compounding LIFO cycles. If SPY is divided out into its 9 general business sectors and AIM-High applied to each, then there are many more cycles to add to the return. I, too, used to keep a model of SPY and of the 9 business sectors running. Unfortunately I gave it up some years ago. The 9 AIMs did FAR better than the single SPY AIM. That was a direct result of the compounding LIFO activity of the cash.
Thanks again for the enjoyable analysis.
