Replies to post #110 on A.I.M. "In Depth" Q&A (AIMQ&A)

[ls7550]

So why do I need AIM? Because I never mastered the art of taking profits. I would bet that for most private investors, this is by far the hardest part of the game. AIM offers a rational, systematic approach that forces me to take partial profits as prices rise.

AIM as a money manager is pretty mediocre. Classic AIM versus 50/50 and broad long term S&P index outcomes tend to broadly be little different - whilst AIM can have you all-in at times.

Where AIM shines is in its buy indicators/timing. Since 1871 a S&P real (inflation adjusted) price AIM and measure the forward 10 years outcome from having bought at those times resulted in a significantly higher average reward outcome compared to the broad average. Excluding dividends and based on real price changes since 1871 AIM buy time point 10 year holding periods averaged 6% (real) compared to a 3.4% average. Dividends would have further uplifted those gains (and potentially also been above average in having bought at a relative low).

Much of overall longer term rewards are a simple function of start and end dates. Buy at a peak, end at a trough and rewards can be dismal, in some cases you'd have been better off in cash deposits. Buy at a trough and sell at a peak and the rewards can be outstanding. For many a end date may never occur within their lifetime so the best they might do is look to buy in at a relative low and AIM can be a reasonable indicator of appropriate times to lump in.

A negative element however is waiting for such signals, that may be a number of years apart. Being out in cash = missed/lower gains compared to had you gone all into stocks from day 1. The likes of Buffett however are a indicator of how sitting on cash for years before making a appropriate purchase at around the right time can yield great overall outcomes. Broadly I'd approximate that AIM purchase timings in addition to 6% real gains from price appreciation, might have provided a 1% or 2% above average dividend yield on top. 3.4% average + 4.3% historic average dividends in the average case, 7.7% real type rewards, perhaps 10% nominal after 2.3% inflation, versus AIM's 6% average + 5% to 6% dividends, 11% or 12% real, 14% or 15% nomimal type rewards.

Conceptually AIM taking profits at the right times to accumulate cash reserves to deploy later at the right times would produce great overall results, but that simply doesn't seem to be the case. As such I opine that AIM sell timings aren't that good. Mediocre. Tom uses Vealies for instance that would seem to add to rather than detract from overall rewards.

All of course just my own personal opinion artful picture painting.

Clive.