VORTEX AIMing

[Conrad]

Hi Devron,

I am not sure yet why you ask this question. Without trying to be critical on what you might achieve with it, it comes over as to ask that for a bicycle race why not just use a moped instead of a bicycle? With both the bicycle and the moped you will get to the finish(barring accidents). You might as well ask: Why not bet on the Hare instead of the Turtle? With an AIM System the intend is to AIM. Why do anything else?

But you propose an option that I have not thought about. Can you help me out?

1 What are UOPIX and USPIX? A short explanation may help me(I am from Missouri);
2 I suppose that these two funds or companies, may have a negative correlation so that typically one goes up and the other goes down?

If that's the case, then what you propose works like this, correct me if I am wrong:

Option 1
A goes up and B goes down. The profit in A is invested in B. This may result in A and B not being rebalanced if B drops more than A has risen;

Option 2
A goes up and B goes down. The Value Ratio A/B >1. OK now you sell enough of A and invest this into B so that at the finish line VR A/B=1.

Option 2 would appear to be what you mean. Well, that looks like AIMing to me: for A you cream-off the profit. As far as A is concerned it makes no difference what you do with the money(A is blind). For B is makes no difference as to where the money comes from(B is blind too).

In this scheme the criterion as to how much you sell of A is not driven by an AIM formula but by the need for B to be matched to A in a 1:1 ratio. In other words, if B would be a deep diver the amount you sell of A would be large, but if B drops only a little you sell only a little of A.

I understand it now, and indeed it is an interesting scheme but in my opinion it is simply a form of AIMing. Now, much more interesting is the fact that this is almost a pure form of a VORTEX Investing with the aggression parameters for A and B adjusted so that the VR A/B = 1 after every rebalance. The only point that I would add here is that is that in order for VORTEX to have the VR A/B=1 be achieved automatically I would have to add a calculation so that on the basis of the relative values of A and B at any time the VORTEX-Sell(A) Function and the VORTEX-Buy(B) Function are such that after the rebalancing VR A/B=1. Essentially what you propose is therfore AIMing, if VORTEX Investing is allowed to be called AIMing!

In reality it is much simpler to do this calculation manually, as what you propose is mathematically a piece of cake.

Yes, your scheme will certainly will work, but it will be a conservative approach as you limit your actions to the case that A and B will actually move as you want then to move. With VORTEX you can optimise each stock individually and certainly do better by not forcing the VR A/B=1 condition.

Suppose A and B both run a profit? Then you will do nothing apart from a bit of rebalancing, and your equity value will rise indefinitely without taking the cash to reduce the risk for a sudden drop in both prices? Then you are up the creek and the profit will have evaporated while you looked at it. This would be the same as investing with a Buy & Hold Policy. Any AIM-program will beat you in this case.




Conrad