A.I.M. Users Bulletin Board

[ls7550]

Re vWave.

I see you've found it already Rien.

Instinctively I would expect the total return to be less than standard AIM because I expect a dampening effect

When you rebalance (trade) either the prior trend continues - in which case it would have been better to have deferred rebalancing, or the prior trend reverses - in which case it was better to have rebalanced.

AIM in effect will have deployed all of cash reserves at a given level. If the downward trend continues then you're prevented from adding more. If the trend reverses, then you potentially were fully loaded at the bottom. Depending upon which cases you test, sometimes AIM will be the better (fully loaded at the bottom and subsequently reversed), or sometimes it will enter a 'dead zone' of all of cash having been deployed and the share price continued on further down.

Across all of the tests I've run, my gut feel is that overall it all washes as an overall average. Assuming overall generally the same result, of the two I'd rather be inclined to have some cash reserves than not. AIM then becomes little different to constant weighting. An advantage of AIM however is that you're more likely to actually make the appropriate trades than not. Investors typically work against themselves and fail to trade when appropriate - something that AIM helps to overcome. The differences in actual rewards achieved are significant - something like 2% or 3% annualised IIRC. i.e. many investors will underperform the index/average by 2% or 3%. With AIM you're more likely to hit the average.

If rather than constant weighting your AIM steers towards a target dynamic weighted amount i.e. the vWave, then that can help uplift overall rewards more towards above average i.e. instead of 50% constant weighted stock, at the lows you might have expanded to 70% stock and at the highs you might have held just 40% stocks (prior to a sizeable decline in stock prices). Such that you lose less, gain more overall (better overall result).

Whilst the concept of AIM is simple, its extremely flexible and can be applied to almost anything. The better choice of AIM settings however will vary from one particular case to another i.e. are subject to how/what assets you prefer to invest in.

If you're the type of investor who was selling some stock in the lead up to the 1999 peak, was buying some stock in the run down and near the 2003 lows, and again during the 2009 lows, then you probably don't need AIM. Many investors however would have done the complete opposite - making their results below average as a result - and who would have done better had they followed AIM's advice.

Clive.