AIM UK

[ls7550]

Thanks Tom.

I recall that your iWave did add some alpha like benefit, so I would imagine that the LD-AIM Bull/Bear like scaling at iWave below/above risk levels could bolster total returns.

To bear in mind ;>) mind however is Bulls and Bears can last a lot longer than you might anticipate.

LD-AIM scales up trade size by adding more virtual shares to actual holdings so that minimum trade size, as a percentage of (real+virtual) stock value, is increased. Applying this scaling when in low risk could be a good thing as more stock would be purchased quicker during the rebound back up again in stock prices, averaging in more at a lower price overall.

Equally however it could turn out to have been a bad action as more stock would be bought quicker should the bear prolong (cash-burn rate)

You'd need tight downside methods to prevent excessive cash burn. Perhaps along the lines of waiting at least 30 days between consecutive purchases and/or 15% discounts in stock price from the previous purchase price level before making any further purchases (as I believe Steve uses).

Once average risk regions were entered reverting back to conventional levels (no virtual stocks) would slow down the trade sizes and pace.

Equally when in high risk the virtual+actual like scaling of LD-AIM would have a tendency to sell out of stock quicker and at higher prices before entering back down into the average risk territory and again reverting to conventional (no virtual stocks) AIM.

There are many ways that fundamentally might achieve a similar affect, using twice long, twice shorts funds at low/high risk levels, or scaling up trade sizes using LD-AIM during high/low risk levels etc. A further extreme might be achieved by combining both, switching to twice scaled long/short index funds and using LD-AIM. A virtual 4X fund! Ouch! Scary!

Ladder tends to be more transparent on the cash burn rate front. Under Ladder the top and bottom price levels at which we are 100% all-in or all-out are pre-defined. That top and bottom range combined with the amount of funds we have available or allocated to the investment depicts the trade size.

If the Ladder top and/or bottom price levels are narrowed then the trade size increases, if the bottom/top price range is widened then the trade size reduces.

To implement this scaling type activity using Ladder we could narrow the top/bottom range during low risk periods - bringing the Ladder TOP down during low risk periods. When in high risk we could narrow the range by bringing the Ladder BOTTOM up. During neutral risk we could again revert the Top and Bottom price levels back to their previous wider levels. Ladder accommodates the injection/removal of funds into/out the account relatively easily and provides an instant update as to any adjustment trades required. Equally adjusting the bottom and/or top also provides an instantaneous adjustment trade size indication.

Best regards. Clive.