Wednesday, January 23, 2013 8:12:47 AM
Welcome RCA, Re: v-Wave Calculation...................
The data gathered for the v-Wave starts in 1982 and extends thru 1998 but there's a gap again until 2007. It's my intention to fill that gap one of these days.
However, the calculations are split based on the statistics 10/80/10. The bottom 10th percentile is considered to be bullish, the middle 80% is neutral and the top 10% is bearish.
Individual Company Stock Risk (cash) Range
10th Percentile = 38.8 or below Low Risk; 90th Percentile = 59.1 or above High Risk
Diversified Mutual Funds or Portfolios Risk (cash) Range
10th Percentile = 25.9 or below Low Risk; 90th Percentile = 39.4 or above High Risk
The v-Wave isn't scaled to the highest and lowest values of the database, but from the highest and lowest values in Value Line's history. That extends back to the early '70s. The highest value ever recorded for the "Value Line Appreciation Potential" on which the v-Wave is based occurred in 1974 at the end of a 5 year extended bear market. The "AIM Users Group" here decided that that low point was the target for when our cash reserves should be zero'd out and we should be fully invested. By that measure, diversified portfolios were designated to be about 10% cash at the bottom of the panic of '08-'09. That gives some more comfort to the overall scaling.
As suggested in Post 30219, the effort was to center the data correctly and then let the low be zero cash for the worst bear market in Value Line's history. Further to that effort, the "stock" value is for the single company stock investor where the "diversified" value is for the investor in diversified mutual funds. Diversified ETFs generally fall somewhere near the "diversified" value (such as SPY) but caution should be used with Business Sector ETFs in that they will generally have more price amplitude than the SPY.
In general, use something closer to the Stock value for business sector ETFs and something closer to the diversified value for ETFs that follow "style" (large, mid and small, growth or value) design. Style ETFs generally are somewhat less volatile than business sector ETFs. That said, AIM will have a bit more activity with business sectors than with style type ETFs.
There are three main interests for investors:
1) Price appreciation over time
2) Dividend capture over time
3) Profitable volatility capture over time
AIM addresses quite successfully #3 for investors. It doesn't exclude the other two, but works in concert with them. You can choose ETFs for growth or value or dividend income and AIM will improve total return given enough market cycles through appropriate volatility capture.
The v-Wave is appropriate for equity type ETFs of all sorts, but isn't really useful for cash targeting of a bond or fixed income portfolio. The scaling is generally wrong and the v-Wave is not generally in phase with the fixed income side of the world. (also, the v-Wave would need special scaling to be useful for any leveraged ETFs or inverse ETFs)
Overall, the v-Wave is conservative and cautious in its suggested cash reserve level. Much like a barometer, it does help one get a feel for what has been going on and what might be expected in the near term.
Best regards,
The data gathered for the v-Wave starts in 1982 and extends thru 1998 but there's a gap again until 2007. It's my intention to fill that gap one of these days.
However, the calculations are split based on the statistics 10/80/10. The bottom 10th percentile is considered to be bullish, the middle 80% is neutral and the top 10% is bearish.
Individual Company Stock Risk (cash) Range
10th Percentile = 38.8 or below Low Risk; 90th Percentile = 59.1 or above High Risk
Diversified Mutual Funds or Portfolios Risk (cash) Range
10th Percentile = 25.9 or below Low Risk; 90th Percentile = 39.4 or above High Risk
The v-Wave isn't scaled to the highest and lowest values of the database, but from the highest and lowest values in Value Line's history. That extends back to the early '70s. The highest value ever recorded for the "Value Line Appreciation Potential" on which the v-Wave is based occurred in 1974 at the end of a 5 year extended bear market. The "AIM Users Group" here decided that that low point was the target for when our cash reserves should be zero'd out and we should be fully invested. By that measure, diversified portfolios were designated to be about 10% cash at the bottom of the panic of '08-'09. That gives some more comfort to the overall scaling.
As suggested in Post 30219, the effort was to center the data correctly and then let the low be zero cash for the worst bear market in Value Line's history. Further to that effort, the "stock" value is for the single company stock investor where the "diversified" value is for the investor in diversified mutual funds. Diversified ETFs generally fall somewhere near the "diversified" value (such as SPY) but caution should be used with Business Sector ETFs in that they will generally have more price amplitude than the SPY.
In general, use something closer to the Stock value for business sector ETFs and something closer to the diversified value for ETFs that follow "style" (large, mid and small, growth or value) design. Style ETFs generally are somewhat less volatile than business sector ETFs. That said, AIM will have a bit more activity with business sectors than with style type ETFs.
There are three main interests for investors:
1) Price appreciation over time
2) Dividend capture over time
3) Profitable volatility capture over time
AIM addresses quite successfully #3 for investors. It doesn't exclude the other two, but works in concert with them. You can choose ETFs for growth or value or dividend income and AIM will improve total return given enough market cycles through appropriate volatility capture.
The v-Wave is appropriate for equity type ETFs of all sorts, but isn't really useful for cash targeting of a bond or fixed income portfolio. The scaling is generally wrong and the v-Wave is not generally in phase with the fixed income side of the world. (also, the v-Wave would need special scaling to be useful for any leveraged ETFs or inverse ETFs)
Overall, the v-Wave is conservative and cautious in its suggested cash reserve level. Much like a barometer, it does help one get a feel for what has been going on and what might be expected in the near term.
Best regards,
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
