A.I.M. Users Bulletin Board

[Conrad]

Hi Tom,

First an OT issue:
On various occasions, when I send an e-mail to either of my sons, I end up signing off with:

Regards,

TOM

and then sometimes think of you!

The sign off is: The Old Man!

At other times I think of: "The Old Man and the Sea"
*****************************************************

Now about ROTAC

The Time Average Capital -------> TAC

The ROTAC Yield is based on the Money Input to the Portfolio as a capital investment, initially as is customarily done with AIM.

Example

Start Capital= 20000;
Equity is bought per selected CER at arbitrary momnents;
Assume no capital is added nor withdrawn;

After some time(say T = Run Rime = 1 year) and various +/- trades there is a profit or a loss amount 2000:

ROTAC Yield = Profit/TAC*365,25/T*100%

=/2000/20000*1/1*100% = 10%

This is the same as the ROI that is normally used.


If however one enters the 20000 in two stages 6 months apart, like this:

Time 1--> 6000
Rome 2--> 14000

TAC = (6000*1 + 14000*1/2)/1 = 13000

ROTAC = 2000/13000*100 = 15,38 %

The equity trades and associated investments are not considered, just like ones does not do that with the ROI-Metods. In the ROTAC I treat a divided that is paid out in cash just the same as adding new capital and that is considered in the time averaging. If the dividend is paid out in shares then this is not a capital injection but simply equity gain. It is not part of the capital base.
The same applies when one decides to take money out of the Reserve(to pay a dental bill or whatever). . . .Such withdrawals. . .for example, also Retirement Income withdrawals. . .erode the capital base over time and these are time averaged.

Note that when one pays trading cost, or any other investment costs, these costs are not capital withdrawals but equity value reductions. They are not time-averaged for the ROTAC calculation because they are not capital +/- elements.

In this regards the answer to your question is No.

ROTAC does not weigh the equity. The equity simply fluctuates in value due to share price changes or trading. . .how these changes occur is not relevant. The profit is what counts:

Profit = (PV – Sum Capital Injections)

ROTAC = Profit/TAC *365,25/(Run Time)

Remarks
If one adds Capital X on an arbitrary day, then if at that moment ROTAC is calculated the Capital X is not considered as part of the Portfolio capital because it has spend zero time in the Capital Base and has, obviously, not been active as a capitalization for the Portfolio.

The ROTAC would be perfect for a Buy & Hold Portfolio if equity is bought in stages. Instead of considering two B&H Investments one combines them into 1 Portfolio.

In Vortex AIM one can do this with say 5, or “any” number, different equities in a Portfolio. . . each one fully AIMed on its own merits. . .and the Portfolio Results can be considered as a single investment, like it is done with a Mutual Fund(1).

This way one can set up “any” number of portfolios(1).

Regards,


(1) Here “any” number means of course, as many as would be limited by the Memory Space on your computer, and its number crunching capacity