Replies to post #12819 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

Hi Bug

AIM is better than BUY and HOLD when the market is going down. That is because at the top of the market AIM will have you holding quite a lot of cash and you will be buying at lower prices as thwe stock goes down.

In an up market BUY and HOLD is better because you haven't sold any shares at low prices as the stock goes up.

AIM really shines over multiple cycles.

If you believe in G-D and think G-D is benevolent then why would G-D let bad things happen if G-D knew they would occur.

If G-D doesn't know what is going to happen in the future why should we!

Unlike many other methods of investing AIM does not have you invest with the expectation that the market will and needs to move in the direction you predict. AIM reacts to the movement of the market but does not predict it.

Toofuzzy

[aim hier]

Squash, AIM is essentially a hedging technique. It doesn't fare well with buy and hold in strong bull markets. How it does depends on the volatility of the stock selected, and how that stock performs in the future. Since only a few of us have crystal balls, AIM helps us to buy from the scared, and sell to the greedy, whatever the market cycle.
Further, when we say AIM underperforms B&H, we are usually talking about total portfolio growth. If you just look at the dollars actually invested in the stock, I think you will find AIM did very well. In my long term studies of the Dow, I find that AIM underperforms because it just builds up too much cash. You might consider Tom Veale's 'Vealie' as a way to help in this area. I've chosen to keep my cash reserves low, and invest in less volatile income producing stocks (though in recent weeks, they've proven to be volatile). I use these assets as a backup cash reserve. Another idea would be to invest in several asset classes with low correlation (or even better, inverse correlation) and share a common cash reserve. You will find that almost everyone here uses a variant of AIM, I've lost track of how many different permutations there are.
Also, for many, AIM isn't really automatic. Most still use their own judgment to override AIM at times.

[Conrad]

Hi Squashthebug,

I am usually being taken to task for giving complex answers. This time I will deviate from my urge to go into higher mathematics to give my two bits worth of wisdom. The comparison of AIM with Buy and Hold is not fair and means nothing. Pay it no heed.

People who claim B/H works are liars. They secretly do something entirely different from what they are assumed to do:

They BUY, then HOLD for a while till the share price is quite high, then they HOLD for some more, and SELL after the share price has dived to below the Buy Price. Then they lick their wounds for a few years en when the stock price is high again they do IT all over again.

AIM outperforms B/H 99,99 % of the time in the real world. The first reason is the one I explained above: Only a very few B/H investors SELL. . .the Heretics they are. . .at the top of the price peaks, and when they do they are no longer B/H investors but Buy Low/Sell High investors, like AIMers are.

The second reason that AIM outperforms the B/H investing technique is that the REAL %-yield on an AIM investment is actually to be calculated by the ROCAR or ROTAI method, which takes into account that on the average far less capital is tied up AS investment. . .this as is demonstrated by the Cash Equity Ratio (CER), which is greater than zero, on the average, and this advantage is quite apart from the fact that the smaller average investment is exposed to less absolute risk per unit profit.

So, there it is. Apart from a higher yield per invested dollar by virtue of the AIM Methods, the AIM investor also runs less risk of suffering a loss, if things go wrong

AIMers have their cake and eat it too!

Bon apatit.

[aptus]

Hello Squash,

There are two main ways to use AIM depending on the stock of interest.

1) Tune AIM's parameters for use with a relatively non-volatile stock.

2) Use standard AIM parameters for a volatile stock.

Over the years I've found that option 2 works better and is easier to implement (although option 1 still works in many cases).

While both options can beat B&H, my suggestion is to pick high quality, fairly volatile stocks for use with AIM. You might also decide to use some other investment strategy for the your non-volatile holdings (i.e. diversifying your investment strategies as well as your assets).

As Conrad already mentioned, most people don't use the B&H strategy, rather they use Buy, hold for a bit and then sell.

[OldAIMGuy]

Hi again Bugkiller, In the short run AIM has a hard time beating the lump sum investor because a portion of its assets are underperforming as Cash.

For the same reason, AIM has the ability to outperform the lump summer in the long term. AIM's Cash Reserve when put to use returns about 30% between a buy and a sell. So, if the cash is utilized a number of times through cyclical markets, it can help build a portfolio larger than the lump summer's. This takes time, however. The more cycles the further ahead AIM usually is.

The '80s and '90s were unusual times and hard on AIM. With very few major market cycles over essentially 18 years, AIM dragged along a large Cash Anchor for much of the time. However, when the stormy season finally came, the cash was well utilized.

More typical market cycles would give AIM a greater advantage.

Best regards, Tom

[lostcowboy]

Hi STB, I think it depends on the time frame You are looking at, and which stocks you use. If you have a stock that behaves like money in a savings account, where the interest is applied to the account each period and you have compounding, then buy and hold will beat anything. Do you know any stocks like that, I thought not. Also you need to look at a longer time period like twenty years. They say the market has a annualized yield of 8 to 9% a year over that period. If AIM beats that then one could say it is better.
Buy and Hold should be renamed Buy and Sell as that is what people mean. They take a period just as you did and say see how well Buy and Hold would have done if you bought here and sold there. But the trouble is people have a hard time knowing when to Sell! But AIM is based on the Random Walk theory, as we don't know what will happen in the future, we should hedge our investments, and take some of our profits when we have them. A better comparison would be to compare AIM with other hedge formulas, one is the constant ratio plan(re-balancing) or a variable ratio plan. The Constant Dollar plan is a type of variable ratio plan. Aim is basically a modification of the Constant dollar plan.