Replies to post #3759 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi K, Good basic analysis of the AIM function.

Thanks,

Tom

[Tim Reese]

Hello Karel - yes, your points are well taken. When I first read about AIM, my reaction was "you can't squeeze blood from a stone". But apparently, simple variablilty is enough to increase port value over time. I question whether random variability is enough, or whether there has to be some periodicity in prices relative to the sampling rate. Don't know yet.

Ok, done with lunch, back to work! best regards tr

[Conrad]

Karel and AnyAIMer,

You wrote:

With almost purely trending inputs, AIM loses from B&H in an up trend (but still gets a positive result) and....

This statement is a generalizes many of the statements other AIMers have made. Although Karel's statement is not untrue I definitely think that it does no justice to the power of all the AIM Methods that have been discussed here, and elsewhere. I propose to let you think about the cases that the statement will be untrue.

The generalized statement that Buy and Hold will beat AIM in an up trend marked is false in many cases. Without exhaustively detailing all the possibilities consider this:

1) The up trend is weak and exhibits strong volatility. It is quite certain that in the long run the AIMer will beat the B & H strategist;

2) The up trend is linear so that the AIMer sells off part of his stock. For the B & H strategist to beat the AIMer he must keep his stock as long as the AImer does.
More likely than not the B & H strategist might get jittery from the volatility and will sell all his stock a long time before the AIMer does, and if he does, the AIMer will still beat him in many cases!

3) Another way of analysing this(and I have not yet done that numerically but I have good hunch on this) is to look at the net invested capital vs the profit that is made. Here I think it is very interesting as to what we will find.

As the B & H strategist sees his stock value rise(linear price rise) he has at all times his liquidity fully invested(tied up) and his profit is a paper profit(and is at risk for a sudden dip). Compare this with the AIMer's situation:

As the AIMer sells off his winning stock he has less liquidity invested, plus he still has some stock left that increases in value steadily while the net investment shrinks as he sells of the stock. Now, if one calculates at the Profit/(Net Investment) Ratio it might well be that the AIMer is ahead with respect to investment yield. Any other way of comparing is not relevant. Combine this with the fact that some B & H Strategists will sell off before the AIMer does then I see that in a lot of cases the AIM Strategy, in an up trend, will still beat the B & H strategist.

4) Consider also that an AIMer is loath to sit on a lot of cash and that after cashing out the winning stock he already may have invested it in another volatile stock with which he is raking in the profits, with an attractive Profit/(Net Investment) Ratio.

I believe that there are many more AIM investors that made big profits than B & H Investors that made big profits. B & H Investors that lose money don't want to tell anyone about it(they feel stupid that their holding strategy backfired on them). AIM Investors know they can lose a few here and there, and they do not mind admitting it if it happens. The winnings outscore the losses anyway...usually.







Conrad