Hi Toofuzzy,
Thanks - yes, I'm familiar with the Cash Burn table. My concern was with the total drawdown to the combined stock and cash account when following AIM's purchasing instructions at intervals on the way down.
As it happens I can answer my own question. I own some gold miners fund which dropped 53% in price before rising recently (I'm hoping the bottom has been reached, but we'll see!). It used all the cash allocated to it. The value of the combined stock and cash account dropped by 37% - as I suspected, AIM purchasing on the way down exacerbates the drawdown.
Obviously the gold miners is a specific sector and a volatile one. It is a small proportion of my portfolio and has been negatively correlated with my other positions over the last year or so, and these have done very well, so it hasn't bothered me unduly. But the general markets have declined by this order of magnitude twice this century and could well do so again, in which case my overall portfolio (and those of other AIMers) will be hit hard. (In fact it looks as if some other AIMers would run out of cash about half way down!) I have got some bond fund AIM accounts too, but next time round they could lead the decline.
People may say that this level of drawdown is to be expected with AIM and all is fine because they are 'paper losses' only, and the benefits on the rebound are worth it. But assuming I'm right, little is made of this feature of AIM, and my mind has focussed on it as a result of reading several papers on trend following and momentum systems, which report various portfolio statistics, including portfolio volatility, Sharpe ratio and maximum drawdown. E.g. Mebane Faber's Quantitative Approach to Tactical Asset Allocation, including the Feb 2013 update, in which for a multiple asset class portfolio (20% domestic stocks, 20% foreign stocks, 20% bonds, 20% REITS, 20% commodities) with 10 month moving average trend following, he reports 12% CAGR and 10.74% MaxDD over the period 1973-2012.
Best wishes,
Daisy42
