A.I.M. Users Bulletin Board

[ls7550]

I only now see the concept behind your "bumper" idea Tim.

That's a neat way to avoid needing longer term historical price data from which to form the major ladder as you can just use say 10 stdev extremities to define those major ladder top/bottom values.

AIM is a trend following system; basically, buy the dips, sell the rips. As such, when there is a down trend, it is not going to give positive results unless it's inverted to follow a bear market trend. Or hedged with managed futures or options to manage losses.

I see the stop-loss (MF for the want of a better name) style that I use as such a counter.

Alone the MF compound benefits suffer as typically it follows a return/profit series of 0% in 62% of the time, 25% in 38% of time. Which is not particularly good for compounding.

Blended with conventional buy-and-hold however and across that combination both the annualised returns and standard deviation are good, around that of conventional 100% buy-and-hold. Having such a blend where the combined result is for equity like returns, but achieving such with lower standard deviation is near optimal. This however assumes equal weightings.

When AIM is used to manage the whole, and cash reserves are assigned to the MF style, then overall you're effectively ending up with equity like returns from both the 'stock' and 'cash' elements, together with some additional stock price volatility capture benefits.

AIM's conventional cash-drag effects are negated and are of little concern, other than overall striving to balance at around 50/50 AIM stock/MF levels on average over the longer term. A while back I used both Vealies and inverted Vealie type actions with AIM for such purpose. Pulling Vealies to prevent too much cash being built up (e.g. stop selling and increase Portfolio Control when cash exceeded x%), and inverse Vealies to prevent too little cash reserves (e.g. stop buying and reduce Portfolio Control when cash reserves declined below y%).

A benefit is that both the AIM stock and the stock that the MF is applied to can be the same. Which simplify things further in that you just have to sum the total indicated stock exposure across both AIM and MF halves (or more correctly "proportions") and trade adjust to that indicated level.

To be borne in mind however is that whilst providing equity like longer term returns (plus some additional volatility capture benefits), the blend, in having lower volatility, typically relatively under-performs during Bull periods and outperforms during Bear periods. As more time is generally spent in Bull than Bear the effect is an appearance of more often relatively under-performing 100% B&H over the mid term. It is the Bear periods that reverse the situation (loses less) and leads to longer term out-performance.

Best. Clive.