A.I.M. Users Bulletin Board

[Qarel]

Hello Tim,

I am with you on the AIM-reduces-risk theme. When you say: To continue to put money into a constant down trend seems contrary to AIM's aim to reduce risk, you are right of course, but reducing risk is not the only aim of AIM (nor of investing in general . The basic supposition is that you buy quality stocks. That is why Lichello gives blue chip stocks pride of place in his book. In the majority of cases, a blue chip stock going down will go up again. That means that your quality stock that has gone down, now is at a level were buying involves less (downside) risk. Because you still have cash on hand, you buy. When the price rises, your quality investment becomes riskier: you have more money in the market, and downside risk is growing. You sell part of your holdings.

Of course there is a hook to 'in the majority of cases'. In this respect, holding a falling stock, the AIMer faces the same question as a Buy-and-Holder: is this stock worth keeping? If it isn't, liquidation is indicated.

I find your question for a general test intriguing and beyond my powers. Because nobody seems to have done it yet, I would like to make a general and obvious remark. You could classify stochastic inputs according to the way they are "trading" and/or "trending". AIM is custom built for trading inputs: stocks that are going nowhere, but cycle deep enough to generate trades. In this case, AIM makes money were B&H doesn't. With almost purely trending inputs, AIM loses from B&H in an uptrend (but still gets a postive result) and wins from B&H in a downtrend (but still gets a negative result). Inputs that show both trading and trending will give better results than purely trending stocks. Downtrending and cycling stocks show less loss or even a profit (see the jjjinvesting example). Uptrending and cycling inputs show greater gains and may even outstrip B&H. A far cry from a strict proof, and most probably you had this already figured out yourself.

Regards,

Karel