Re: Further on Feedback to Portfolio Control from AIM directed Buys.....
Q.........
Thank you so very much for the detailed reply to my query regarding PC incremental increases.
By increasing the PC from 50% to 100% of the system generated buys, would it not slow down the depletion and ballooning of cash or would it be tooo
slowly?
Your comments would be appreciated.
Best regards
A............
Hi Cap, Re: PC Incremental Increase with Buying..............
Several people have experimented with changing the amount of "feedback" to Portfolio Control from the default 50% value suggested by Mr. Lichello as a good compromise. Like many compromises, changes can make the results either better or worse. It depends upon how the history of the stock's price unfolds over time. I guess you could say it then also depends upon the performance of the stock market to a degree depending on the correlation of the investment to the general market. Bigger PC feedback increments in a rising market do very well in general as it helps to postpone selling and encourage buying.
In declining markets larger feedback to PC would accelerate the depletion of cash. A short shallow decline might work out fine but a deep dark ugly grizzly bear that lasted years might leave some scars as one awaits an opportunity finally put some cash back in the register. Smaller feedback would slow the cash decline.
The problem comes in guessing the future. One of AIM's beauties is that it has 20/20 hindsight where guessing the future is usually a 50/50 bet on average. Personally I've chosen to stick with the feedback at 50% of buy increments. I do many other things to control cash buildup and depletion, so fiddling with PC feedback has never been high on my list of endeavors. Some people have even made the feedback percentage an 'automated' thing tied to some A.I. type formulae.
Thanks for asking. I invite others to chime in who have worked with other levels of feedback to the Portfolio Control. Where feedback from an amplified speaker to a microphone is rather annoying, feedback from proper AIM buying to Portfolio Control is, in the long term, quite satisfying. It's to Mr. Lichello's credit that he managed to see this benefit and build it into his overall algorithm. It differentiated AIM from most other systematic investing models.
