jibes wrote Or you could try my new AIM RE-Bal method
I have reviewed the AIM RE-Bal method web pages and have a few comments and observations.
Firstly, this method is not new at all. It is discussed by Lichello.
Secondly, Bernie Goldberg gave a presentation on this type of approach at AIM 2001.
Thirdly, this approach can out perform AIMing the stocks individually but it also can significantly under perform as well. This depends on the correlations of the stocks involved. AIM derives much of its profit from volatility. The more stocks you AIM in one "basket" in general the less volatility. (AIM RE-Bal advocates AIMing several stocks, say four, and periodically re-balancing them as well as following AIM directed transactions). Great care must be taken so that the stocks used are positively correlated so as to increase volatility otherwise there will be fewer AIM directed transactions than if the stocks were AIMed individually.
One complication to this approach is the question of frequency of re-balancing in relation to frequency of actual AIM transactions. For example, one will of course always re-balance when there is an AIM directed transaction ... but ... should one also re-balance even if there was no AIM directed transaction? Thus there are two different approaches and hence two different potential flavours of AIM RE-Bal.
In order to get a fair comparison one should compare the results of AIM RE-Bal with the overall results of AIMing the stocks involved individually using the same AIM parameters. In addition both flavours of AIM RE-Bal should be presented. As the web site is fleshed out I recommend including such a comparison.
Fourthly, there is an error at the Web Site. It is stated that First, you don't use SHARES and PRICE as usual in your AIM formula
This is not usual at all. It is Market Value of the basket of securities that is used in the AIM formula as is clearly shown in Lichello's book. Of course if the basket happens to contain only one stock then SHARES and PRICE together is a mathematically equivalent way of looking at market value but this notwithstanding, it is market value that is part of the AIM formula. Of course jibes correctly employs this. The statement is only a minor error and is in fact a pedagogically sound approach to use. I only added this comment because new comers to AIM who viewed this site might have been mislead.
Barry
