Replies to post #38171 on A.I.M. Users Bulletin Board (AIMUSERS)

[SFSecurity]

RE:

...the benefit of Aiming, the advantage Aim gets from increased volatility....

Take a look at the image from Morningstar that I posted earlier - #38172. Now take the 50% that is not a bond but some form of equity and run AIM against the blue line and you can see a very clear reason to use AIM.

Without using Vealies, or delayed buying, over the ten years from January 2004 through December 2013, using the DOW figures, AIM gets 4.75%/year with 35% cash (at the bottom it has 2.8% spare cash), 10% buy and sell safe, no minimum trade, while B&H gets 4.68%/year. AIM doesn't do all that much better by itself but if a few of the modifications discussed here were used it would improve the results significantly.

Also, remember the discipline of AIM would avoid the common mistake of getting out of the market as it heads into the 50.7% tank. This is the virtue of buying from the scared and selling to the greedy that AIM commits you to.

Then add in the extra volatility of the 2x or 3x ETFs and you have a handle on much better returns and don't forget the returns from the bonds that you hold. Makes sense to me.

Best,

Allen

[ls7550]

Hi Toofuzzy

Your annalisis makes sense intuitively but it doesnt seem to address the benifit of Aiming, the advantage Aim gets from increased volatility. Am I missing something? I wonder what the difference would be between using leveraged funds or just using LOW DOWN AIM where you just set portfolio control to 2 or 3 times innitial buy amount with SAFE of 5% and min order size of 10%

Rebalancing 50/50 has similar characteristics to AIM, add when down, reduce when up. A difference however is that 50/50 never exhausts cash reserves, but it wont have you as heavily in stock after a sizeable share price decline.

Rather than a 2x leveraged fund, if you can find a asset that has a consistent beta of 2 then that's as good, but doesn't incur the cost to borrow that 2x leveraged ETF's do. Given that such assets are difficult to find, the next best is to hold a diverse bunch of assets in near equal weightings, from that set likely one will have a beta >= 2 (but the actual asset with that characteristic will change from one period to another). So like holding a core set of relatively stable assets and a proportion of assets with consistently very high beta (up and down). The other benefit is that often there will be two (or more) such cases and where as one is down (high negative side beta), the other is up (high positive side beta) that often counter-balance each other (and more often leave a surplus positive benefit).

Whilst you might replicate that with AIM, simply rebalancing holdings back towards equal weightings periodically can be simpler to manage. Maybe just selling down the single best candidate and topping up the worst candidate once/year. Best applied to sectors as sectors are much lsss inclined to fail.