Hi Allen, Re: Market, Economic and Interest Rate Cycles...............
Yes, they're there. AIM loves them. AIM manages the risk of being involved as an investor through all of each cycle.
AIM manages risk during market cycles.
AIM manages risk through economic cycles.
AIM manages income investment risk through interest rate cycles.
There are hundreds of books on investing; what to buy and sell, theories, investor psychology, etc.
There is one book on practical investment management (what you should do after you invest) and it was published first in 1977 by a little known author by the name of Robert Lichello. It works pretty well right out of the box. Once one puts their portfolio on AIM cruise control it pretty much takes care of itself. It's more active than Buy and Hold and more prudent but it's far less time consuming than day trading and ticker addiction.
I did a lot of work on modest changes to AIM. The only ones that can be said to be valid are the ones that boost not just total return but do so without deteriorating return on capital at risk. If total return goes up with an "improvement" but ROCAR goes down, then all the investor has done is expanded risk. There are lots of ways to expand the risk of investing. Many will give better total return under ideal theoretical conditions. The problem comes because we can't invest in theoretical markets, only real ones.
Real markets are where the Automatic Investment Management system does its best work. Note the name includes the word Management, not timing, selection, cycles, rotation, Elliot Waves, sun spots or skirt lengths. You're going to own an Equity Warehouse. What you keep in there is up to you. AIM was designed for managing that warehouse.
The biggest single problem with AIM is investor impatience. Most people who try AIM get bored to tears and give up on it. It's not a coincidence that the greatest number of new AIM users appear after a market decline. By the time the next peak arrives the enthusiasm for AIM has waned and they are off to find the next latest method of increasing Alpha or whatever the current buzzword is. You could almost use this as a market timing device!
AIM isn't designed as a performance improvement device. Best performance comes from being fully margined at the bottom of the market and then being fully liquid at the top of the market. AIM is a bit more prudent than that and therefore can't compete with perfect market timing. It will always own at least the value of Portfolio Control at the top of the market (unless you're using LD-AIM) so always has some downside risk. AIM can get to 100% invested periodically but it doesn't happen that often. Most investors are 100% at risk all of the time so therefore are 100% liable to market risk.
If one had the desire, when AIM was fully invested, one could start buying additional shares on Margin and hope that the recovery wasn't too far into the future. A modest margin position in March of 2009 would have been paid down by year's end at a reasonable expense relative to AIM's profits. If there were ever a prudent way to use Margin, AIM would be it.
Give it a try and attempt to stick with it through a full market cycle and see how you feel about it. There's value to a good night's sleep that can't easily be measured in total return.
