A.I.M. Users Bulletin Board

[ls7550]

Hi Conrad

50-50 stock/cash is neutral, but has the added benefit of being the best choice to (on average) average down the average cost of stock than any other choice of allocation.

Millions of players determine the current fair 50/50 risk adjusted loss/reward continually for each stock. If there's even a slightest deviance then there are vast armies of players with the fastest most powerful resources to hand to exploit those deviations.

Any other allocation other than 50-50 is a prediction that favours one outcome over another (speculation) and if your guesses are more right that wrong you add value, if they're more wrong than right you lose out.

The optimum choice of allocation that produces the greatest gain is one that we can measure historically and that will generally have traded near the actual turning points etc encountered. Predicting such optimal settings beforehand is nigh on impossible as it's no different to that of predicting the wave motion pattern of the stock price over a particular period of time in advance.

Not to be confused with asset allocation. You might analyse particular investments and make a judgement as to the potential outlook for that investment and scale up or down the amount allocated accordingly. Taking a simple example of two investment options for example you might decide that A has a better potential outlook than B and opt to allocate more to A than B.