A.I.M. Users Bulletin Board

[SFSecurity]

Hi Gang, So I went to NBER (National Bureau of Economic Research and got the data for the length of the bull and bear markets from 1945-2009 (11 cycles) with the bear being an average of 11.1 months and the bull being 58.4 months. Using this I created a AIM spreadsheet that runs 91 months, the same length as Lichello's table on pages 64-71 in the fourth edition.

I started with $10,000, $10/share, 50% cash, 10% buy, sell and minimum trade size and a roughly 3%/year market increase. It was hard getting this exact so the figures I got are not perfect.

During the two bear markets I would have run out of cash on the way down so I stopped buying when very close to zero cash left and wound up with total portfolio of $12,983 versus B&H end at $9,056, AIM doing $2,983 over the time frame and $3,927 better than B&H, but only 3.5%/year, not great.

In looking at the reason I ran out of cash it was clear that I was buying before the market hit bottom. So I played around a bit with the % buy safe and came up with a 23% buy safe, a portfolio value of $15,591, 6.031%/year return. The first buy was at the $4.00 bottom.

But the key to consider is that the market doesn't fall 60% so a lower buy safe % would be better most of the time. I'm not sure how to do it but what would make the most sense would be a delayed buy like Orcroft suggests.

Playing with the sell safe, going to 0% requires increasing the buy safe to 28% to keep from running out of cash. This combo reduces the result to $14,787, 5.293%/year still better than stopping buys altogether.

None of the other approaches I tried did any better.

One of the other keys is in position choice as demonstrated on pages 88-96 in the fourth edition. Most years AIM loses to B&H but in the final three years of of the chart gets about $5,000 ahead of B&H, not all that much given the time frame.

Then the chart on pages 100-1 shows that the general market doesn't do all that well with AIM either, 3.445%/year.

At: https://www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/

...the long-term data for the stock market points to that 7% number as well. For the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends, the average annual return comes out to exactly 7.0%. Check the data for yourself.

Based on these two things – the raw historical data and the analysis of Warren Buffett – I’m willing to use 7% as an estimate of long-term stock market returns.

Given this, neither AIM nor B&H, using the examples above, keep up with the average market during that period.

It is for this reason I've been playing with a variety of approaches to see if any improvements can be made. So far the only one that seems to better is the selling a PUT and extra stock, AIMing the combo and either getting out when the market goes up or selling a CALL to get a bit more and a fixed sale point. Every other attempt has been dubious at best.