Replies to post #37773 on A.I.M. Users Bulletin Board (AIMUSERS)

[Conrad]

Interesting points Ocroft,

Your remarks testify that you have a lot more Market know-how than I ever had, especially lately I have not been paying attention to it.

In one of my post I made the comment that the stock market is man made and repetitive.
You replied, " In that case when Enron re-bounces we know when to get out before it collapses!

I would agree that the SM is "man made" but you use of the word "repetitive" must obviously have a different interpretation than that the seasons on Earth are Repetitive. . .(which in this case also means the occurrence of seasons are reasonably "predictable"). . .if we discount time periods running far into the future. The details of the seasons are far less predictable, but we would not expect any one winter to go to absolute zero and stat there.

In any case "The Stock Market" is not Enron. In that perspective my remark on Enron recovering and going down again was clearly tongue-in-cheek humor. . .Any one equity hardly ever does feature repeatability other than a sort of chaotic volatility that in some cases shows repetitive periods.

I merely mean to say with this that in conversations on forums or otherwise in informal discussion we often use words that are not well defined so that what is actually said by different people carries a unique message, which is usually discovered later. . .or any conclusions that are stated are disagreed on, while in fact there might not have been any disagreement if the use of words were more carefully structured, as is normally done in scientific/engineering papers(at least that is the intend of such papers).

On the rest of yout remarks on AIM BTB, up-trend, down-trend, out of the market, and how it relates to Enron I must admit that "I am out of my tree on that", especially when it comes to the details of the matter that you seem to be very familiar with. . you obviously live in a different tree J

I like to remark that over the years I have discussed AIM BTB and Vortex AIM. . .which are very similar in their general operational mechanisms. . .I have always proclaimed that an AIMer should not let AIM be The Investment Manager and to use the system only as a guideline for trading within the limits of the understanding that the AIMer has of the Market Kinetics . . I dare not use the word "Dynamics" here :-).

In my booklet The Vortex Method I continually stress the point that an AIMer should study the market and not buy equity he knows nothing about, and not be afraid to bail out if things drop too fast or too deep for his liking, or in a very strange way that appears abnormal

So, in regards your question:

". . .I am curious to know how your present method of Vortex aim would have fared on auto-pilot using Enron's actual stock prices starting on 01/01/1997?. . ."

Interesting as that is, I would say that I never supported the idea of an Auto-Pilot Manager for investing. . . not with AIM BTB nor with Vorex AIM. The more interesting question would have been: "How would Conrad have fared with his "hands-on" Investment Management using his Vortex AIM?". . . . but that is not what you asked :-), so it is not relevant as we can not go back and redo it. . .I have no answer for you. I had never heard of Enron until its demise came onto the AIM Forum.

I did however experience a very similar case, and that was my investment in the Dutch Aircraft Company Fokker, that had been taken over from Dutch Government Ownership by Daimler Benz. . . .Jurgen ???? called Fokker "His Baby" :-). . I forget what year it was.

I "AIMed" Fokker by the seat on my pants. . .I was then not yet using the exact Vortex AIM algorithms as they are now but the idea was the same: Buy into the dips and sell towards the tops. . .in steps. . .No filters of any kind other that my own head.

I started buying at about Fl. 6 and sold and bought on the ups and in the downs, all the time keeping my eyes and my ears tuned to the Fokker Market information and the statements made by Jurgen Kemph about his Baby. The stock began to cycle downwards at some point. . .it had reach a high of Fl. 11 . . .great volatility :-) . . .and landed back on Fl. 6 or so and kept cycling there for a bit, but then it started creeping down again. At the point it reached close to Fl. 4. . . 33 % drop from the start price. . . I decided to Bail Out at about at Fl. 4, using the "Market" information I had. . . The Baby appeared to be sick and might be dying in the near future. . .
The Baby died about a year later or less.

I would have to dig into the records for exact numbers but I recall that Buying at 6 and bailing out at 4 gave me an Annual Profit of 5%, including figuring-in the accounting of the trading costs :-)

Looking at the prices of Enron till 10/18/2001 at the extremes:
43
88
43
90
43 From this point the shit hit the fan. . . apparently :-)
29 At this point the "writing was on the wall" and I think I would have baled out at that point. This is incidentally a 33 % drop from the 43 starting point just as it was for the Fokker Bail-out. Of course, IF Vortex AIM would have been on auto-pilot it would have run out of money eventually and all the investment would have been lost. . . BUT THAT is not the way to run an AIM System. . The Investor must use his head and on the basis of his market know-how bail out when it is wise to do so!

I can not make any calculations on the profit I would have made on Enron IF I had invested in it. In hind-sight I can run the Enron Price History in the Vortex Optimizer I have now, but the question is:

"How would I decide in 2014 what I would really used for Vortex Parameters between 01/01/1999 and 10/18/2001 when the price reached $ 29 ? "

To do this without any bias in regards to what did happen I could use the Enron prices from before 01/01/1999 and optimism a Vortex Parameter Set and then Run an Unfiltered Vortex Aim the same way I have been running the S&P 500 SPY Demo since 03/01/2011.

If I would do the Bail out on the Enron price of 29 I could well have made a handsome profit over the ~~3 year run. Still in case where needed I would have intervened here and there to adjust the Vortex Parameters IF the actual price trend would differ significantly from the price history that would have been used for the optimization. That is what I did with the Spy Demo as I never use an auto-pilot on any real investment:

Originally SPY was quite volatile and a good AIM-equity, but I started out with Holding zones of 7% but SPY’s volatility had dropped, so I adjusted the holding zones roughly 50% to get some trading done but that increased to trading costs and that had to be stopped. So later on I again increased the Holding zones. They are now something like:

Buying: 7%
Selling: 10%

with very little trading occurring.

As you might know I also use a Time Average Investment Base to calculate the Annual Yield . . .ROTAI. . .At the moment ROTAI =~ 20 % . . .based on effectively invested capital over the 3.5 year period. Looking at the SPY Price development I would have been better off to use the Buy & Hold strategy. . . [much les work involved]. . .SPY shows little volatility and went steadily from about 126 to about 190 now-a days. . .That is a ~51% total yield or ~15 % per year. In this respect the 20%/year Vortex Yield is 33% higher than the B&H. . .in spite of all the trading costs incurred. . . .I also figure in the Interest gained on the cash. . . The many hours spend in this are not figured into it.

How it would have worked out for Enron is too much work to get into, and in any case the results would be hardly be identifiably unbiased.

The current Spy Demo IS unbiased as I do not know the SPY future price trend.

[OldAIMGuy]

Re: AIM BTB..................

One point should be made in any discussion of AIM "by the book" is that Mr. Lichello didn't really ever recommend AIM being applied to an individual company stock (individual AIM engines per stock). He basically implied, "More power to you!" in regard to AIMing individual companies and felt AIM should be used on a collection of stocks. His reasons mainly had to do with increased work load and increased individual stock risk.

He also didn't anticipate the advent of such things as business sector funds being available. So, along the way we've all had to adapt as the selection of available investments has changed and to accommodate our own personal investment methods.

I do feel that we need to take different levels of caution for different style investments. Part of the reason for developing the idea of "split SAFE" was so we could differentiate between a long dated treasury bond fund and an individual "social network" company stock. But I feel our level of differentiation should at least go on including a proper upper limit to the cash reserve being applied to the appropriate investment.

In that line of thinking, adding some TA based overlays to AIM such as you've suggested in awaiting a bottoming trend before committing AIM's cash could be effective. That would involve some testing of various types of investments so as to determine which blend of TA would be of greatest benefit for the asset class being examined. As has been studied since the markets began, some asset classes tend to move in broad, well defined cyclical trends and some seem to out for a 'random walk' or maybe even a random Jog!

In the case of Enron, it would appear while out for its random Jog, it stepped in front of a bus!

Best regards,

[lrp42]

Hi Ocroft,

Please let me know if I have a correct understanding of your Buy method of using AIM.

A:) A stock you own goes into a downtrend and signals a Buy using your chosen settings for SAFE and Minimum Transactions.

B:) You do not Buy any shares at this time but continue to monitor what is happening to your stock.

C:) The stock continues its downward trend and signals another Buy....now it has signaled Consecutive Buys.

D:) Again, you do not Buy any shares, but continue to monitor the stock and make notes on the number of shares your cumulative Consecutive Buy signals have indicated you should have purchased.

E:) Now the stock turns around and begins a new uptrend. Eventually it signals a Sell. At this point you now Buy all the shares you delayed purchasing while the stock was in its downtrend.

Since it appears to me that you do not use any Charts or Technical Analysis in your investing it would appear that E:) above is your method for choosing when to make your AIM purchase of shares.

It seems to me that it is almost like using some kind of Vealie, but on Buys instead of Sells.

My conclusion is that this would prevent you from buying some cheaper shares in the event that only one Buy was indicated and the stock turns around and begins a new uptrend. On the other hand, if you purchased a Deep Diver the only actual real money you would have committed is your Initial Purchase. Consecutive Buys are excluded in your method.

Bottom line for me is that if I began to use a method such as I described above I would use some small SAFE and Minimum Transaction settings which would mimic a MACRO AIM type investing for my AIM Hold Zone. Probably would not use a SAFE on the Sell side. Would not use this method for ETFs or Closed or Open End mutual funds since they would never go to zero, but only use this method for individual stocks.

If I am wrong in my understanding please let me know.

Thanks,

Ray

[ls7550]

Ocroft analysis

Running AIM on historic data back to 1871 (US stocks price only) monthly reviews and for all by the book AIM trades, measuring the average cost of stock across sequential same direction trades compared to the next months share price where no further same direction AIM trade was indicated provided 184 measures, 41 buys (where a count of 1 involved multiple AIM buys in some cases), 143 sales (count of 1 involved multiple AIM sales in some cases).

For buys, delaying to buy at the next no-AIM-trade indicated timepoint resulted in a marginal price improvement of just -0.1% average lower price across all such trades i.e. delaying the actual purchase trade to a single purchase point after AIM was no longer indicating one or more sequential buys was marginally better than by the book AIM cost averaging of share purchases. For sales however the average price improvement by delaying was +1.2%.

So ocroft style of delaying buying (selling) until the market was "on the right side of the trade"

to be on the right side of the market.
In this instance, when the stock is in an uptrend, be long. When the stock is in a downtrend, be short or in our case, be out of the market. AIM uptrend is on the right side of the market.
However, BTB AIM accumulates on the wrong side of the market.

seems to have worked on average, but more so on the sell side. Despite the very small average improvement on the buy side, delaying so as to use a single timepoint/purchase potentially has other advantages, such as

My view is that if a stock that is really going to zero, it would not have enough momentum to make enough aim uptrends moves to absorb its cash reserve.