Saturday, January 04, 2014 6:13:02 AM
AIM S&P Real since 1871
Hi Steve, nice going for 2013. Taking some off the table to build up a 34% cash reserve also seems a wise choice given more recent relative strength.
This next chart shows AIM of S&P Composite real (cost of living adjusted) share price, monthly reviews, with (real) dividends and (real) one year interest rate amounts added to its cash reserves (cash interest was assumed to be 1 year interest rate i.e. perhaps reflective of holding something like some in T-Bills (for liquidity) and some in perhaps 2 or 3 year bonds/bond ladder).
Generally stock price (only) might broadly grow with inflation plus perhaps GDP. They'll also pay a dividend which in this context might be considered as the real reward. Setting AIM to 0% SAFE, 10% minimum trade size will simply add or reduce after each 10% move in real share price, and uplift Portfolio Control after each buy (compensatory increase to reflect GDP)
Excepting short dated inflation bonds, assets tend to be volatile around inflation, such that the AIM captures those motions.
Year end 2013 that's indicating around 44% cash reserves to be appropriate. vWave's more recent value indicates around 43% cash reserves to be appropriate (which implies that ValueLine are anticipating relatively low earnings on average over the next 4 years across the 1700 individual stocks or so that they monitor).
The stacked green (cash) and blue (stock value) bars (scaled to left hand Y-axis) are log scaled, so that gives a false impression of being cash heavy. The red (real share price) line is scaled to the right hand Y-axis. Averaged around 2 trades/year typically, with close to two-thirds of trades being buy trades.
Despite averaging half the stock exposure AIM produced a 1% lower reward than 100% stock buy and hold (5.75% annualised real versus 6.7% annualised real) - assuming total gains (accumulation, dividends and cash interest reinvested). It also did a reasonable job of suggesting appropriate amounts of cash reserves (stock exposure) to hold over time.
All the best for the new year.
Clive.
Hi Steve, nice going for 2013. Taking some off the table to build up a 34% cash reserve also seems a wise choice given more recent relative strength.
This next chart shows AIM of S&P Composite real (cost of living adjusted) share price, monthly reviews, with (real) dividends and (real) one year interest rate amounts added to its cash reserves (cash interest was assumed to be 1 year interest rate i.e. perhaps reflective of holding something like some in T-Bills (for liquidity) and some in perhaps 2 or 3 year bonds/bond ladder).
Generally stock price (only) might broadly grow with inflation plus perhaps GDP. They'll also pay a dividend which in this context might be considered as the real reward. Setting AIM to 0% SAFE, 10% minimum trade size will simply add or reduce after each 10% move in real share price, and uplift Portfolio Control after each buy (compensatory increase to reflect GDP)
Excepting short dated inflation bonds, assets tend to be volatile around inflation, such that the AIM captures those motions.
Year end 2013 that's indicating around 44% cash reserves to be appropriate. vWave's more recent value indicates around 43% cash reserves to be appropriate (which implies that ValueLine are anticipating relatively low earnings on average over the next 4 years across the 1700 individual stocks or so that they monitor).
The stacked green (cash) and blue (stock value) bars (scaled to left hand Y-axis) are log scaled, so that gives a false impression of being cash heavy. The red (real share price) line is scaled to the right hand Y-axis. Averaged around 2 trades/year typically, with close to two-thirds of trades being buy trades.
Despite averaging half the stock exposure AIM produced a 1% lower reward than 100% stock buy and hold (5.75% annualised real versus 6.7% annualised real) - assuming total gains (accumulation, dividends and cash interest reinvested). It also did a reasonable job of suggesting appropriate amounts of cash reserves (stock exposure) to hold over time.
All the best for the new year.
Clive.
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.
