A.I.M. Users Bulletin Board

[Conrad]

Grabber, you point is well made but I like to add another dimension to the ROCAR & TOTAI Yield calculations. The Reserve is simply a part the Investor's excess liquid assets that are set apart for AIM investing.

For a person that allocates 100% of his cash to an AIM Investment it is reasonable to see that cash as an investment and to use the Simple ROI as an indication of his Yield. However for such a person it could also occur that for one reason or another he needs to take out some money from his AIM Reserve to buy a new washing machine or to repair his car, and at other times he may have received extra cash added to his Reserve. In that case he has no fixed amount of Initial Reserve but a Time Variable Total Capital= Cash(var) + Investment(var). It makes no sense then to use the simple ROI Yield because the Capital Inlay is Time Variable.
bed) say $ 1 Million has not need to separate his total cash into a portion available for investing and a portion that just sits in the Bank. The yield on his Investment is simply and effectively to be based on the actual capital inlay for his investment...that would give an accurate indication of his investment. . .Cash Base would typically fluctuate anyway.
Nevertheless that person could well look at all the cash he has as an investment. . .usually people do not look at the money in a savings account as an investment but some do but in any case the capital base would also be fluctuation.

So the point is that a simple ROI based on a fictitious fixed Cash Inlay is a poor indicator of Investment Yield kinless one specifically used a Fixed Inlay System and NEVER takes any money out not put in extra money. In practice this would usually not be the case. . witness the many discussion on this forum on: "What to do when extra money is added to the AIM Machine?"

To solve these cases in a systematic way I say the Capital Base for an Investment should be time averaged so that a representative Capital Inlay is available any time the yield is calculated.
I have done this as follows:

1 Time Averaged Return on Invested Cash = ROTAC. . . .Extra inlay or extractions of cash can be done any time and the Yield equation remains valid.
2 Time Averaged Return on Investment = ROTAI. . . .Only the money that is actually invested in Stock is time averaged. The ROTAI formula is valid any time irrespective how many time the invested amount are changed.

The Yield Formulas give accurate indications of yield any time.