Replies to post #44204 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Hi Vitaali

Butting in.

In the UK dividends tend to be higher than in the US. US history has dividends being more harshly taxed in the past, which prompted firms to retain more of earnings/distribute smaller dividends.

Whilst Lichello advised not to change Portfolio Control (PC) for dividends on the basis that all things being equal the share price drops by the amount of dividend paid, in the UK if you actually uplift PC by the dividend value that provides a means by which it can be increased over time so that AIM is less inclined to build up too much cash reserves.

Another option is to AIM real (after inflation) prices/values, in which case PC needs no additional revision outside of its normal maintenance. Or alternatively you might revise PC upwards by inflation, perhaps doing so at each of your review dates. If for instance you are performing monthly checks and inflation is running at 2%/year then for monthly ... 1.02^(1/12) = increase (multiply) PC by 1.0016515813 each month. For youth/accumulation and where dividends are being reinvested you might prefer to double up that amount in reflection of stock total returns tending to be 2 x inflation i.e. a price that rises with inflation along with a dividend that compares to cash interest (which also broadly matches inflation).

Generally you never want to reduce PC as its reflective of your cost-base. Reducing it would reflect being prepared to sell shares for potentially less than what you paid for the shares. Exceptions would be if that if a holding had dived so deeply that it was unlikely to recover to former levels and you wanted to get it back working again (cut your losses and reset AIM so it was more inclined to trade again).

Clive

[Adam]

Hi Vitali, I added a column with the %/year PC increment which I enter manually, however by default the next value is copied from the previous date, so unless I change it it stays the same.

Whatever date I enter into the spreadsheet the PC is correctly incremented by that value.

If I see that the ETF is in a correction I set my subsequent PC increment to zero until it starts to pick up again. I don't want to be betting against the market. But I never decrease the PC. I bet on a rising market in the long run and decreasing the PC would risk selling at a loss. This is consistent with AIM method which does not decrease the PC,

The idea is that diversified funds follow the market which increases in the long run so I let those ETFs run up without selling up to a certain point. I find it easier and less work than doing Vealies. The Vealie concept may be better for individual stock or a very specialized ETFs, since these do not necessarily follow the market. My PC increment has done well with the recent rising market from building up excessive cash. Otherwise I would have had to do repeated Vealies.

The underlying premise in AIM is that the security either recovers or increases but never goes into a perpetual decline. If this is not met the system fails. It's like dollar cost averaging, a method not for individual stocks but for investing in funds.

Adam