Tom Veale wrote on the siliconinvestor BB on 6/10/2011, "Starting back at the beginning of the New Millennium I suggested in my old AIM Newsletter that people start shifting their SAFE emphasis from being biased for Accumulation to that of Distribution. Essentially I suggested that we drop the Sell SAFE to zero and shift all of it to the Buy side. Throughout the period since I've kept most of my AIM engines so tuned. So, if they were formerly 0% Buy and 20% Sell SAFE they shifted to 20% buy and zero percent Sell SAFE.
I wondered if we could automate this Split SAFE decision. Supposing a fund's price is 40% up the scale from a major bottom (early 2009 say) and 60% below the corresponding major top (late 2007 say) - I can give an example. If the combined buy and sell SAFE is 20%, you could make buy SAFE 0.4x20=8, and SELL safe 0.6x20=12, in other words biasing towards accumulation or distribution in a graduated way according to distance from major support and resistance. In late 2007 the fund would have been approaching the 1999 top and a long way from the spring 2003 bottom, so the same mechanism would have prescribed a low Sell SAFE and large Buy SAFE, because the risk of a fall looked much greater than of a continuing rise.
On the basis of this I have just reduced Sell SAFE on govt. bond funds I have to 0, and taken all profits, back to PC level, increasing Buy SAFE accordingly.
Regarding equities, I'm inclined to believe the view that the next secular bull market won't start until after the S&P 500's PE10 has dropped to single figures. That could imply a fall in the S&P 500 of about 60% some time in the next few years I think, so as an overriding safeguard I feel inclined to bias AIM towards that eventuality, in terms of both the cash proportion of new equity AIMs and the splitting of SAFE. Maybe this is too conservative?
Thanks for the various responses to my previous post.
Best wishes and Happy Christmas to all.
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