AI
Monday, January 30, 2023 5:49:46 AM
Hi BW and Welcome, Re: AIM and leveraged ETFs.................
While AIM can't run out of "Shares" in a rising market, it can and does run out of "cash" when markets take a severe, quick downturn or a prolonged, slow decline over months. Following this thought, Cash is actually the more 'precious' part of the portfolio in that it isn't unlimited.
Even with non-leveraged investments the Cash side of AIM needs to be understood. The AIM Cash Burn Rate
( https://web.archive.org/web/20120610011525id_/http://www.aim-users.com/cashburn.htm )
helps to plan for downturns in the market. Knowing what size decline will deplete Cash can help you in deciding at what rate you will set up your AIM engine for burning its primary fuel.
Splitting the SAFE into a buy SAFE and a sell SAFE might be a start. Then you can stage how much resistance you want to assign to each side of AIM's activity. Beefing up the Buy SAFE and lowering the Sell SAFE from AIM's traditional 10% can tilt its activity toward conserving Cash.
You may find that running out of cash isn't a function of Volatility as much as it is a function of Trend. Compounding daily or weekly declines will suck hard on the Cash Straw far more than the price bouncing both up and down. In 2022 we saw the major indexes decline overall for the entire year. That's a long time to be tapping the Cash Reserve no matter whether you update frequently or not. Every time AIM buys, it makes it easier to buy again. Crowding too many buys together can exhaust the cash well before the market has tired of going down. In a perfect world we'd run out of cash exactly at the bottom.
Understanding "Market Risk" might help in planning how and when to spend AIM's cash. For instance, if you were to overlay the v-Wave Risk indicator as a control device for AIM buying, it might delay one's first few buys in an extended market decline.
As an example, if you inhibited AIM from buying any time the v-Wave was above its Median value it would have delayed any buying in 2022 until probably April or May. That might have eliminated some of AIM's less efficient buying early in the decline and preserved cash for deeper discounts.
Another idea that is used by several AIMers is to add to the Buy SAFE with each sequential Buy. If SAFE is 10% at the start of the decline, then it would move to 15% on the Buy side after the first buy. Then it would move to 20% with the second sequential buy, etc. This increases the needed discount between buys and helps to conserve cash. Only when AIM gets a Sell trade and recovers some cash does the Buy SAFE move back toward 10%. This might help your overall cash utilization.
I hope some of this helps you in attempting to tame these high leverage ETFs for AIM's use. AIM is responsive to both Frequency and Amplitude of Price Reversals. Long upward or downward trends can muck up things a bit if not anticipated with some minor rule changes. Also, what might work for an S&P500 Index Fund might not be effective for a 3X Leveraged fund. AIM benefits from adjustments tuned to the 'personality' of the selected investment.
Best wishes,
OAG Tom
While AIM can't run out of "Shares" in a rising market, it can and does run out of "cash" when markets take a severe, quick downturn or a prolonged, slow decline over months. Following this thought, Cash is actually the more 'precious' part of the portfolio in that it isn't unlimited.
Even with non-leveraged investments the Cash side of AIM needs to be understood. The AIM Cash Burn Rate
( https://web.archive.org/web/20120610011525id_/http://www.aim-users.com/cashburn.htm )
helps to plan for downturns in the market. Knowing what size decline will deplete Cash can help you in deciding at what rate you will set up your AIM engine for burning its primary fuel.
Splitting the SAFE into a buy SAFE and a sell SAFE might be a start. Then you can stage how much resistance you want to assign to each side of AIM's activity. Beefing up the Buy SAFE and lowering the Sell SAFE from AIM's traditional 10% can tilt its activity toward conserving Cash.
You may find that running out of cash isn't a function of Volatility as much as it is a function of Trend. Compounding daily or weekly declines will suck hard on the Cash Straw far more than the price bouncing both up and down. In 2022 we saw the major indexes decline overall for the entire year. That's a long time to be tapping the Cash Reserve no matter whether you update frequently or not. Every time AIM buys, it makes it easier to buy again. Crowding too many buys together can exhaust the cash well before the market has tired of going down. In a perfect world we'd run out of cash exactly at the bottom.
Understanding "Market Risk" might help in planning how and when to spend AIM's cash. For instance, if you were to overlay the v-Wave Risk indicator as a control device for AIM buying, it might delay one's first few buys in an extended market decline.
As an example, if you inhibited AIM from buying any time the v-Wave was above its Median value it would have delayed any buying in 2022 until probably April or May. That might have eliminated some of AIM's less efficient buying early in the decline and preserved cash for deeper discounts.
Another idea that is used by several AIMers is to add to the Buy SAFE with each sequential Buy. If SAFE is 10% at the start of the decline, then it would move to 15% on the Buy side after the first buy. Then it would move to 20% with the second sequential buy, etc. This increases the needed discount between buys and helps to conserve cash. Only when AIM gets a Sell trade and recovers some cash does the Buy SAFE move back toward 10%. This might help your overall cash utilization.
I hope some of this helps you in attempting to tame these high leverage ETFs for AIM's use. AIM is responsive to both Frequency and Amplitude of Price Reversals. Long upward or downward trends can muck up things a bit if not anticipated with some minor rule changes. Also, what might work for an S&P500 Index Fund might not be effective for a 3X Leveraged fund. AIM benefits from adjustments tuned to the 'personality' of the selected investment.
Best wishes,
OAG Tom
Buy from the Scared; Sell to the Greedy.....
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