A.I.M. Users Bulletin Board

[ls7550]

Hi Charley

Thanks for the additional Wall St Crash era detail.

I've intentionally tried to structure my own personal investment style in reflection of historical evidence, Japan, Wall St Crash etc.

The more I study the markets the more I see pure randomness. But in keeping with the present date it’s more of a drunken random-walk. Two staggers forward, one stagger back type motion.

If you flip a coin over and over again, recording the number of heads/tails, then over the long term there's a tendency towards 50/50 counts of both, but in the interim there can be marked deviations from that central line. What tends to happen is a fluke sequence of heads (or tails) occurs and shifts the shorter term central line up (or down) where it remains for a period of time until another fluke sequence accumulates in the opposite direction and swings that central line back towards the longer term central line.

Personally I see current prices at or around the longer term central line and as such we have near equal chance of the next fluke swing being either in the positive or negative direction.

I think the current vWave 38% indicated cash reserve level is a good indication (much better than the previous vWave calculation version that had us at negative cash (leverage) levels). Which should help us capture the higher volatility of up/down swings arising from weight of money that's looking to see a reversion back to false levels.

On the domestic (UK) front my greatest concern is that the government are attempting to reinflate the economy back to such false pre-crash (or rather pre-mean-reversion) levels, doing so by BORROWING YET MORE MONEY.

It's as though we bought a house 5 years ago for $100,000 of which $90,000 was on mortgage - and had seen the price rise in value year after year, allowing us to increase our mortgage in those years and spend those borrowings on a lavish lifestyle. Last year the house value might have been $300,000 of which $290,000 was mortgage. More recently the house price has declined to $150,00 leaving us $140,000 in negative equity - and their solution to this dilemma is to borrow yet more!

This will likely install great volatility over coming years, along the lines of the Wall St Crash era cases that you outlined. AIM like investing is likely to be one of the better investment styles over such a period. Perhaps foregoing capital appreciation benefits in lieu of price volatility capture benefits.

All the best for the New Year.

Clive.