Replies to post #47935 on A.I.M. Users Bulletin Board (AIMUSERS)

[JoeForkeyBolo]

NAIL 3x leveraged ETF is a great example of an investment that rocks with AIM management. But as ocroft1 posted, you have to have the discipline to follow the AIM strategy and not let emotion take over. Much easier said than to do in actual practice.

Take a look at the NAIL stock chart. AIM loves this kind of price movement. Of all ETFs I've tested, NAIL has become my poster child for AIM management. Cyclical in nature (as is the housing and construction markets), with lots of peaks and valleys for AIM trading.



Now take a look at how well AIM managed this investment. This is with an initial $50K investment with 75% starting equity ratio, with the standard 10/10/10% AIM parameters, and utilizing my drawdown curve strategy. Look at the significant drops in portfolio value an investor would have to endure to eventually realize those fantastic gains. How many could endure a $200K–$400K drop in investment value without intervening and disrupting the AIM method by taking control of the reins?

The beauty of backtesting is you can know in advance to expect this kind of wild ride from an investment like NAIL, and can prepare you for what may lie ahead. Having a backtested chart like this to refer to when times get tough may help provide confidence to stay the course.

Although this is an extreme case that most AIMers wouldn't touch, it is one of the funds I would invest in. Hopefully seeing a chart of what is possible after the tough times will encourage others to stay the course in their own AIM investments.



The x-axis is Trades and the y-axis is Portfolio Value (equity + cash).

[ls7550]

We need to remember that Lichello's primary goal was to provide a systematic approach that removes emotion from the process and provides investment returns greater than the buy-and-hold strategy. If one cannot look at themselves in the mirror and confidently say they can let AIM manage things, that they will CHOOSE not to panic when the market is tanking, they should probably stick to dollar cost averaging or let a professional manage their investments. Professionals tend to not panic during these times like individuals do, and understand the long-term benefits of buying in a down market, just like AIM does.

Much of successful investing boils down to averaging in (saving over many years), averaging out (drawing down over retirement years), and averaging down (the average cost per share, and perhaps averaging up the number of shares being held).

The US operates to either FIFO or LIFO taxation, in the UK we're stuck with just average cost per share taxation basis. That does however provide a indicator of how AIM, when measured across points of time having similar start and end date prices, is inclined to average down the average cost per share, and average up the number of shares being held.



The other primary benefit is that with AIM smaller signalled trade amounts are flagged where you're more inclined to actually follow those, if not already automated via market limit orders. In contrast someone who may think they'll maintain 67/33 stock/bond weightings and rebalance once/year .. or suchlike, when it comes to in practice they might fail to actually do so, not act in fear of buying more stocks after fast/large declines that might decline even further, only to later see a rebound and a missed opportunity.

In many cases 30 year MaxWR% values are similar whether you held a aggressive or conservative asset allocation. In relatively fewer 30 year cases stocks performed exceptionally well - typically for start dates following recent large/fast declines. The all-stock'er rides those down and up, only those that lump in at the lows actually capture the full benefit, however AIM in effect keeps some dry-powder for such cases, so whilst not fully benefiting does capture some of those gains, and where that applies to all AIM's started at different times that traverse that dip/rebound.

Clive