100% Stock AIM (AIM beta)
Just a observation. Stocks in net real terms (after cost, taxes and inflation) are similar to a coin flip game with 50/50 outcome. That's taking into account that a 50% decline takes a 100% subsequent gain to get back to break-even.
Stocks broadly rise because the coin is loaded and typically comes up heads (up) around 6% more often than tails (down).
d'Alemberts betting sequence can turn a 50/50 outcome game into a profitable game. Start with 1 unit stake and after each losing play increase the stake by 1 unit, after each winning play reduce the stake by 1 unit (minimum stake 1 unit).
In a casino there are unlimited cases of potential losing sequential sequence, with stocks however there are finite losing sequences.
1 unit and if prices drop 33% increase the stake to 2 units. If the price falls 66% below the original increase the stake to 3 units. Excepting bankruptcy, the share price can't fall to 0% or less - so the maximum stake is finite.
Historically since 1900 for US data if you started with 1x (non leveraged exposure) and increase that to a 2x ETF (twice leveraged) after a 33% share price decline, and a 3x after a 66% decline, then you're portfolio would have been more rewarding overall. In some cases that could get very nasty however i.e. Japan post 1990.
A less extreme version might be to use stocks with higher beta (volatility), such as small cap value or high yield stocks etc.
Conceptually if you run a AIM with 100% stock holdings (no cash), but manage that AIM as though there were cash and each time a buy signal occurred you moved the buy trade amount of stock out of a index fund into a small cap value fund, and vice-versa when AIM signaled to sell stock you reduced small cap value fund and rotated into index fund by the amount of the sell trade size amount, then AIM might steer you to having average beta prior to a decline and having moved into higher beta after a decline, which might then rebound more/faster subsequently, before AIM moved you back into lower beta holdings again.
100% stock exposure all of the time, but varying the overall portfolio beta to have increased beta after declines, reduced beta during subsequent rebounds and reset beta once recovered.
As a example, from 20th March 2009 market lows to the end of 2009, VISVX (small cap value) rebounded 68.3% compared to SPY rebounding 47.6% (total gains) [for reference from 20th March 2008 to 20th March 2009 VISVX dropped 43.6% compared to SPY 40.4%].
I suspect that could provide some interesting and potentially more rewarding results.
Have a great weekend.
Clive.
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