Thx Karel for the confirmation, and also to you Tom for the warm welcome. Being a lurker for some time, I am always amazed at the level of intelligence and consideration on this board. Quite a difference from the average internet boards.
Unfortunately, my current investigation seems to conclude that AIM is not really all that much better than buy and hold over the short term, and maybe even the long term. I wanted to run my thoughts by some of the aim experts here to see whether my conclusions made any sense.
Lichello aim requires super volatile stocks that are fundamentally sound. Logically, these two criteria seem mutually exclusive. To check this, i ran some historical tests on DIA, figuring the blue chips are as fundamentally sound as you get. Running DIA over the past 5 years using standard lichello aim settings resulted in a gain of ~ 6%, where B&H yielded about the same. ROCAR was less at ~ 62%, so overall aim wins, but not by much. Taking taxes into account might make the comparison worse.
Conclusion: DIA meets fundamental criteria but not volatile enough for aim, probably because too many stocks held by the ETF.
To improve volatility, i chose 10 of the stocks from DIA (C, CSCO, DD, DIS, GE, JNJ, MSFT, SBC, WMT and XOM), trying to vary by sector. I thought that with the enrons and worldcoms of the world, this number would be sufficiently diverse enough to mitigate any stock specific events. I ran them through standard lichello aim. The result was aim produced 20.5% on average, while B&H produced 19.8% on average. ROCAR was lower on aim, so aim wins, but again not by much (and w/o tax considerations factored).
Conclusion: Large cap fundamentally sound stocks do not produce enough volatility for aim.
Thus, it appears you need to find small or mid-cap stocks that will turn out to be the next msft, intc, csco, orcl, dell, etc., in order to get the volatility aim craves and assurance that it will be around for a while. If you were lucky enough to pick out such gems (my luck would never be that good), my thinking is that you would be better off to load up and hold over 10+ years.
Lichello explains that you need ~ 2 cycles, where the stock deviates > 50% per cycle, per year for 7.5 years to turn 10k into 1m. He admits such a beast does not exist, but states that if you vary initial investment and time frame you will get great performance compared to b&h. Let's assume you can find a stock that is half as volatile 1 cycle per year. I haven't done the math, but logic suggests that it would take 4 times as long to turn 10k into 1m, or 30 years. This is a fairly long time period, but certainly reasonable given the kind of results you are seeking, but I'm not even convinced that a stock of this volatility and fundamental soundness exists.
Hence, I seem to arrive at the conclusion that unless you have (1) a very long time frame, and (2) pick some excellent stocks, aim really won't do much better than b&h over the long run.
I understand that i am extrapolating much from very few data points, but this is the current direction of my thinking.
Am i nuts?
Best Regards,
John
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