Replies to post #30196 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

RE: Split Portfolio Control

Hi Glenn

Vealies serve the purpose of uplifting the core price level around which AIM works over time. Generally AIM is a cash accumulator over time, Vealies somewhat aid in reducing that accumulation.

SAFE and Minimum Trade Size can be replaced with an arrangement of a minimum trade size and trade size scale factor. For example a 0% SAFE and 20% minimum trade size, 0.5 trade size scale factor is no different to 10% SAFE and 10% minimum trade size. After a 20% price move in both cases 10% of stock is bought/sold.

You could therefore achieve a similar effect to the one you outline by using a variable trade size and/or trade size scale factor. Which in many respects is akin to using time diversification and delaying AIM account reviews (and potential trades) until a later date.

Which might be reduced down to running a virtual AIM on the vWave and only reviewing your actual AIM’s when that virtual indicated a buy or sell.

When the iWave was public there was a guideline rule that the low risk and high risk levels be used as a guide of when to trade. If I recall correctly the guideline suggested only looking to follow AIM indicated buys when the iWave was in low risk and only looking to follow AIM indicated sells when the iWave was in high risk. Those high and low risk bands have been carried forward into the vWave and in the iBox they are shown as red and blue lines (10 percentile levels that are currently showing 38.3 and 59.1).

Best.
Clive.

[Adam]

Hi Glen, It's an interesting idea and I don't think it's been proposed before. I especially like the idea of using Veales on the buy side, because I've been delaying my buys when the security drops a lot, anyway.

One problem I can see is your scheme would make the hold zone larger when Veales are executed. This is not a problem when the stock drops and your buy is delayed, but on the sell side this could be a problem.

Say if you've had a couple of buy Veales and pushed the buy PC down and had a buy, and then the stock reverses and moves up. In my mind you want to take the sale as soon as there is adequate gain from your last buy. But in you system the gain by the stock must now be larger than in regular AIM.

So perhaps a modification would be, when a buy Veale is executed because of lack of cash, the sell PC is also lowered along with buy PC. Or another method would be to lower the sell PC if a buy Veale is used AND a buy had taken place-- that would guarantee that a quantum of stock is not sold at a loss.

Adam

[macprogrammer]

>The concept involves splitting the Portfolio Control into three entities: 1) the Core Portfolio Control, 2) the Buy Portfolio Control, and 3) the Sell Portfolio Control.


I makes me think there should be one master algorithm tuned to very large market moves, like those on a 3 to 5 year basis which then sends a co-efficient to the regular AIM algorithm.

How to do this is a much more difficult question to answer. Because you'll always run into the same problem. When the bear market kicks in, how will either algorithm know in order to keep AIM from buying what it thinks are cheap shares, only to discover the market is headed much lower.



Ryan

[lostcowboy]

Re: Split Portfolio Control
Hi glennpj, Once you have your rules defined. I would test them on paper, and compare them to original aim. If that works then make a spreadsheet, and do more extensive testing over many cycles to make sure the rules are stable. Sometimes when you mess with the rules of AIM it can become unstable, leading to where it will not buy and sell correctly.

I did come up with a idea of splitting Portfolio Control into a Buy Portfolio Control, and a Sell Portfolio Control. But I could not get it to work properly. But my idea was no where near yours.
Mr. Lichello tried to have portfolio Control equal to the amount of money put into stock, that way you would not start selling below the average cost of the stock. He also wanted to keep all computations simple so that anyone could do it. He also wanted it to be automatic. He was unable to do all these things, so he came up with AIM as it is in his book.

Tom came up with the idea of Vealies on the sell side. If Mr Lichello believed that 50% cash was good enough to start a AIM program and carry it through a bear market, then why let AIM have more than 50% cash in a bull market. However if you do not do the sell, it is only a paper profit that could evaporate later.
Later Mr. Lichello came out with newer editions where he changed the starting ratio of cash to stock. He did this to try and adjust for the super bull market we had in the 80's and 90's.
Meanwhile Tom came up with his Idiot wave, for determining the proper starting ratio of cash to stocks. There has been talk of using the Idiot wave to adjust the cash to stock ratio from time to time but I don't think that anyone tested it.Now we have the use of the V-wave, which is still a new concept.

About your buy side Vealies, not sure that they are a good idea. I think it could end up having you buy less stock than with regular AIM. Regular AIM delays buying of stock in the holding range so that it has more money available to buy stock at the bottom of the market. Because AIM increases Portfolio Control with each buy, at or near the bottom of most bear markets AIM will buy most of its stock. The increase of Portfolio Control, also causes a delay in selling of stock. This causes AIM to have a greater profit than its father, the Constant Dollar Plan.
The Constant Dollar plan, has cash for up to a 70% bear market, AIM normally has cash for a 50% bear market, that is with using a 10% drop between buys.

It may be more profitable to use the V-wave as a trigger to delay buys and sells, but not do any Vealies. Just a thought.