AIM is a form of dynamic weighting approach - similar to constant weighting, but instead of using a constant weight throughout it scales up (or down) the weighting the further the share price declines (or rises).
Using constant weighting, such as perhaps 50% stock 50% cash and periodically rebalancing back to those weightings, you will never exhaust cash reserves.
AIM relies more upon a mean reversion effect and in scaling up the amounts bought the deeper the price declines runs the risk of exhausting cash reserves.
For individual stocks it might be better to use constant value. For a whole portfolio that is more likely to mean revert AIM might be better. Or you might opt to use a combination of both.
As a simple example of using both, you might individually constant weight a number of stocks, but adjust that 'constant' over time, perhaps to the VWave indicated amount of exposure (as shown in the 'Intro Message' for this board and/or as Jon (JDerb) currently posts each week). You don't however want to adjust actual holdings too often, so would in practice only adjust whenever a sizeable amount was being traded.
Another variation that I've previously outlined in what I call Ladder - which is a log stochastic based measure. For instance if I thought that when the major stock index (Dow or FTSE or whatever) had a 10% dividend yield then I'd like to be all-in stocks at such high yields (low prices) and at a 2% dividend yield I'd rather be all-out of stocks at such low yields (high prices), and the current dividend yield was 4% then the log stochastic (ladder) would be :
( log(current) - log(bottom) ) / ( log(top) - log(bottom) )
= ( log(4) - log(2) ) / ( log(10) - log(2) ) = 0.43
= 43% stock exposure deemed to be appropriate
If over-trading is to be avoided however, rather than adjusting many individual stocks to VWave indicated exposure amounts, you'd instead trade just 1, 2 or maybe 3 stocks at a time, so you have the management role of deciding which stocks to add to or which stock to reduce whenever the VWave indicated adjustments. Or to simplify things even further, don't bother with individual stocks nor VWave and just AIM a fund of stocks (ETF) instead.
If instead of AIM'ing just one fund (ETF), you individually AIM a diverse range of ETF's and those ETF's tend to have a degree of low correlation (one is up, another is down) then that can potentially enhance rewards whilst doing so with lower risk than AIM'ing just one alone.
