A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi Bar and Welcome, Re: Bigger Gains with Little Trading.............

I've mentioned here before there are three areas an investor considers:
1) Capital Appreciation over time.
2) Dividend Capture over time.
3) (profitable) Volatility Capture over time.

A well designed portfolio can include both #1 and 2 and those involve both careful study and selection. #3 is a management choice that can be applied to either 1 or 2. There are different methods of implementing #3. My choice since the 1980s has been Mr. Lichello's AIM. It as allowed me to invest while staying rational during times when irrational investment behavior is popular.

I think of AIM as being 'dynamic buy and hold.' My overall portfolio is built of primarily index funds which I manage with AIM. It didn't start that way. Initially I was a buyer of individual company stocks. Later when index funds became available for individual business sectors, I started to shift to them. Individual stocks had given me my biggest winners and my largest blunders prior to AIM and after. Sector index funds gave me enough extra volatility over diversified style funds to make use of AIM worthwhile. They also reduced the risk involved in single company investing to a minimum.

Now after almost two decades of using AIM with sector index ETFs I have realized it isn't so much 'volatility capture' as it is trend following. AIM then is used as a buffer relative to market risk. Market risk can come from various different sources but is many times self generated. A quick glance at Price/Earnings, Price/Book and other fundamental measures show very wide ranges with extremes worth noting. AIM and ETFs help to smooth out those extremes by trimming and back-filling positions over time.

Another book you might enjoy is an interesting one not widely read by Thomas Phelps. Here's a review and how I applied it to my portfolio design:
http://web.archive.org/web/20120830055138id_/http://www.aim-users.com:80/books.htm#b5

Mr. Phelps suggests there are wonderful companies that give huge returns if one has the patience to stick with them (through many cycles). My impression was that a portfolio of such stocks could benefit through AIM management by taking advantage of the big cycles that occur through long term stock ownership. One would be invested through good and bad times to varying degrees and the best performers' positions would expanded well beyond Buy and Hold's by AIM's activity.

I, too, have held onto many of the positions I still have for decades. AIM has helped smooth out the lumps and bumps along the way. The biggest downfall to AIM since the start of the New Millennium has been the nearly total loss of income on Cash. In AIM's first two decades Cash usually contributed something to total return. The most recent 17 years have had that contribution reduced to nearly nothing. I noted this week that the 13 Week Treasury Coupon Rate finally broke through 1.3% per year in interest. While still well short of where it should be at least it is beginning to pay its own way. It is, however, still below the CPI inflation rate so can be considered a losing investment when not deployed to the other side of the ledger (stocks, funds).

Thanks for stopping in.