A.I.M. Users Bulletin Board

[ls7550]

The one thing that still bothers me about Lichello's AIM is that you never know at what price point your cash reserve will run out.

These three stocks (representative of consumption, health, financial sectors), were not a good choice over that period as in nominal price only terms one was up +20%, another down -50% and the other barely unchanged ... total price only changes since 1998, collectively lost money.

Rebalancing yearly to equal weightings yielded a 62% gain. Add dividends on top and that rose to 178% gain. Discount inflation and a 2.4% annualised real gain overall.

Look at the years best (red) and worst (blue) and in some years for a stock that was down, another was up.



Under AIM, one eating cash, another generating cash. Also if collectively 4% of dividends are being produced then relative to one stock that's 12% cash that might be directed into the down stock. Or profit taking (expanding cash) in earlier good years might have made more cash being available in a bad year.

How that all spans out cannot be estimated/predicted in advance. No you will never know at what point your cash will run out. Question is should you pool your cash reserves, or not? Some prefer not to, to avoid potentially feeding too much into a single holding that could totally fail. Others pool the cash. Indicative that their choice of assets are ones that they anticipate will avoid total failure. If you don't pool cash then as TooFuzzy said the cash % is indicative of how deep the share price might decline before exhausting cash.

Clive.