A.I.M. Users Bulletin Board

[ls7550]

Hi Cindy. I know we will hit a bottom at some point but my stomach turns over when I wonder when. What a wretched time to be investing! Or will it be a major opportunity?

From http://www.indexarb.com/dividendAnalysis.html

recent Dow Yield is 4.3%

Long term historical average yield is 4.5%, so on that measure we're near fair value.

Typically yields swing about that average, from one extreme to the other. We've had 'recent' low yields, so potentially we're overdue for a swing the other way into high yields.

A modest (1 standard deviation) swing into high yields would put the Dow yield up to around 6.2%. At 7.7% it would be touching 2 standard deviation (relatively rare event).

An increase of yield from 4.5% to 6.2% implies a 27% price decline potential. An increase up to 7.7% yield levels implies a 40% price decline. As typically the downside cover of AIM before running out of cash is proportional to the percentage cash reserve, and the current vWave indicates around 31% cash, then that implies a 31% price decline cover before an AIM account with 31% cash exhausts its cash reserve. Which falls in reasonably well with the above yield based figures.

At current price levels you're more likely to achieve the long term average equity total return (stock bought previously at lower yields are more likely to relatively under-perform the long term average).

So the major opportunity isn't with us yet. But it is a good time to be buying stock as more typically stocks spend long periods of time at above fair value level.

Natural tendency is to buy when everyone else is buying (at or towards the highs) and sell out in frustration after losses (towards the lows). AIM helps overcome that human emotion/instinct and steers us towards buying low, selling high. Declines can be stomach churning, however once faith in AIM's ability is established then declines become almost enjoyable (or unemotional - ZEN like investing as TooFuzzy calls it).

Best. Clive.