Re: Split Portfolio Control
Hi glennpj, Once you have your rules defined. I would test them on paper, and compare them to original aim. If that works then make a spreadsheet, and do more extensive testing over many cycles to make sure the rules are stable. Sometimes when you mess with the rules of AIM it can become unstable, leading to where it will not buy and sell correctly.
I did come up with a idea of splitting Portfolio Control into a Buy Portfolio Control, and a Sell Portfolio Control. But I could not get it to work properly. But my idea was no where near yours.
Mr. Lichello tried to have portfolio Control equal to the amount of money put into stock, that way you would not start selling below the average cost of the stock. He also wanted to keep all computations simple so that anyone could do it. He also wanted it to be automatic. He was unable to do all these things, so he came up with AIM as it is in his book.
Tom came up with the idea of Vealies on the sell side. If Mr Lichello believed that 50% cash was good enough to start a AIM program and carry it through a bear market, then why let AIM have more than 50% cash in a bull market. However if you do not do the sell, it is only a paper profit that could evaporate later.
Later Mr. Lichello came out with newer editions where he changed the starting ratio of cash to stock. He did this to try and adjust for the super bull market we had in the 80's and 90's.
Meanwhile Tom came up with his Idiot wave, for determining the proper starting ratio of cash to stocks. There has been talk of using the Idiot wave to adjust the cash to stock ratio from time to time but I don't think that anyone tested it.Now we have the use of the V-wave, which is still a new concept.
About your buy side Vealies, not sure that they are a good idea. I think it could end up having you buy less stock than with regular AIM. Regular AIM delays buying of stock in the holding range so that it has more money available to buy stock at the bottom of the market. Because AIM increases Portfolio Control with each buy, at or near the bottom of most bear markets AIM will buy most of its stock. The increase of Portfolio Control, also causes a delay in selling of stock. This causes AIM to have a greater profit than its father, the Constant Dollar Plan.
The Constant Dollar plan, has cash for up to a 70% bear market, AIM normally has cash for a 50% bear market, that is with using a 10% drop between buys.
It may be more profitable to use the V-wave as a trigger to delay buys and sells, but not do any Vealies. Just a thought.
Come see me at Systematic Investing group #board-966 lets talk formula plans.
