A.I.M. Users Bulletin Board

[labestul]

Hi Conrad,

I just visited your pages on the vortex method. I found them very interesting and I have the following comments:

(1) There are a number of "TYPOS" most of which are unimportant but some of which might be misleading to the casual reader. For example: In the section "The Multifunctional Case" just after you speak of the Lichello Flaw you give the example ...

y1=5000 y2=3000 pc1=5000
pc1-y2=5000-3000=2000

but then you say

Test1 --- Advice= Buy 3000 ...

Clearly this 3000 is incorrect and merely a typo because you subsequently correctly use 2000.

(2)Perhaps I am rehashing old ground here because I gather that this may have been discussed over at TMF. I plan to read all of the post over there but these days it's hard just keeping up over here. In essence what you term the Lichello Flaw is something that I first noticed with AIM and it bothered me terribly but mostly for esthetic reasons.

I think it is unfair to describe it as a flaw ... I think of it as a feature. Of course if one uses GTC orders then it can be considered a flaw but if one uses periodic updating (e.g. monthly) which is the context in which Lichello was operating, then it can be a blessing in a rapidly decreasing market.

(3) Your answer to the flaw is in effect to buy an amount greater than what standard AIM would suggest and that amount would be such that the revised portfolio control would equal the total value of the stock held after the buy. I played with this idea more than two years ago. I ran countless simulations and found that this revised method sometimes outperformed standard AIM and sometimes did not.

(4) Your idea of employing adjustments to portfolio control both with buys and sells (and not necessarily the same adjustments) together with the idea of possibly using negative values of "f" for example ... is a very interesting idea. I will perform some simulations in this area. One could of course claim that Lichello used two separate factors with AIM. One adds to the portfolio control 50% of the amount purchased and 0% of the amount sold.

(5) There is a significant error in at least one place. You use "S" to represent Lichello's SAFE-factor and you then state that Lichello's buy-advice is S*(pc1-y2). There are in fact two errors here. First Lichello's "buy advice" is actually (pc1-y2) regardless of the value of S which is 10%. The "buy order" is this "buy advice" modified by S. In other words your term "buy-advice" seems to correspond to Lichello's "buy order" rather than Lichello's "buy advice". OK ... OK this is not really an error but more a question of semantics. This might however confuse AIMers who were reading casually. Let's use your term of "buy-advice"

You state that Lichello's buy-advice would be

S*(pc1-y2)

but this is incorrect!

Lichello's buy-advice (i.e. buy order in Lichello terminology) is

pc1-y2*(1+S)

Your fourth summary point (i.e. By adjusting the f-actor downwards by a small amount this has an identical effect as using a SAFE-factor, as is done in the Lichello AIM Model. The use of the f-factor eliminates the need for a SAFE altogether as the investor can tune the investment aggression exactly to his needs. ) seems to be based on this incorrect equation. This is something however, that I will investigate further.

I hope the above comments are helpful. Thanks for provide a very interesting colour variation to AIM.

Barry