Replies to post #28490 on A.I.M. Users Bulletin Board (AIMUSERS)

[BowlerBob]

Thanks, Clive for your response.

The backtesting I mentioned was not sophisticated in any way. I had just subscribed to TC-2000 (Worden Bros) software and looked at long-term charts to find stocks that had a price history of many ups and downs. I then went to the first day of data available on TC-2000 and "bought" $10,000 of stock for Buy&Hold and $5,000 of stock for AIM. I then kept track of it on a 13 column pad, checked the AIM function at every day's price, and performed the action requested by AIM.

I don't recall for certain, but believe the data went back to 1992. I followed each step through to the "current" data for each of about 15 stocks. This was very labor intensive. Then I simply compared what B&H and AIM were worth on that last day for each of the stocks. The conclusion was that B&H outperformed AIM because the total value was higher at the end. No IRR, no ROCAR, no consideration of how much of my Portfolio was at risk at any particular time, just higher total value at the end of the test. I did this during the span of Aug-Oct, 2000. Six months earlier or six months later may have led to a different conclusion.

As I stated, I was a beginning investor (naive). Didn't even know the 90's had been an extended Bull Market (ergo: my comment that years later Tom's Vealie and I-Wave made me reconsider AIM). It told me that my backtesting didn't take the "Bull" Market into account. I believe that Mr. Lichello concluded something similar with AIM-HI.

Regards,

Bob

[BowlerBob]

Clive,

RE:If AIMing the 1x Long ETF and using the Double Inverse for the Cash portion had those negative attributes, would doing the opposite reduce those effects?

This was a bad question on my part. Of course, there would be no negative compounding on the 1x Long ETF -- only on the 2x Inverse ETF. By doing the opposite, I would actually increase the negative aspects by adding the second inexact ETF. Both the 2x Long and Inverse ETFs (2x and 1x) would have this problem. It is my understanding that the 1x Inverse ETFs are not perfect reflections of the underlying ETFs; that is, they do not go down or up the exact amount that the primary ETF did each day.

So the proper question in my mind would be, Would the negative compounding be noticeable? The only legitimate comparison for the 2x Inverse (or Long) would be to what the Cash component would actually achieve--not to the 1x Long ETF. Isn't that why many of the posters are using other substitutes for Cash and even Mr. Lichello wrote about a scheme to enhance the Cash side of the equation.

I believe my suggestion would be equally neutral, but an unnecessary complication when compared to Earthpet's plan. Equally neutral because I would be AIMing the 1x Inverse ETF--not comparing it to the 1x Long ETF. AIM would treat it as a "stand alone" investment and would not recognize the inherent inexactness because it doesn't compare it to the 1x Long ETF. And more complicated because it would be turning the market upside down, similar to interpreting the VIX.

Regards,

Bob