Replies to post #4086 on A.I.M. Users Bulletin Board (AIMUSERS)

[Conrad]

KarW,Anybody On B&H Performance


I have heard a lot of explaining that B % H beats AIM when stock goes straigt up. I think that claim should be tempered with some real measure as to what beating AIM actually means.

OK assume that a stock goes straight up(almost never happens).

Case 1:

B%H Invests 10000
Aim Invests 5000 + 5000 cash
Stock price dubbles(I am an Optimist in the worst of times)

B&H Gain= 100%. Investment worth=20000
AIM GAIN= 100%. Investment worth=10000 Cash = 5000

The fact is that the AIMer has just as good a performane on his investment. The fact that a rich man makes more profit in a rising market than a poor man does not make the rich man a better investor. That is what counts. The Aimer is a better investor! Period

The holding onto 50% does not mean that the AIMer has been beaten by the B & H investor.

Consider this: Case 2

AIM1 Invests 10000 + has 10000 in cash
AIM2 Invests 5000 + has 5000 in cash
Stock price dubbles(I am an Optimist in the best of times)

AIM1 Gain= 100%. Investment worth=20000 Cash = 10000
AIM2 GAIN= 100%. Investment worth=10000 Cash = 5000

Who has beat who here? Who is the better investor?

Look at is this way: Investors invest money in Black Boxes every which way they care or choose to do it, and in the end only the yield on invested capital counts for judging performance.

We can show beyond any doubt that the AIMer will Beat the B&H Investor all the time with yield on invested capital, except possibly if you look at trading costs if there is not one cyclus trade on the way up for the AImer(With lower trade sizes the % cost is a little higher). Now see this: the AIMer can also earn interest on his Reserve. That interest will result in a higher Yield and again the AIMer will beat the B&H on performance, if you do not consider the Reserve as invested capital.

If the stock cycles only a bit the AImer can at least make a few cycle trades and beat the B&H investor any time. It's a fact!

A B&H investor can, by accident, earn more money in a rising market but he is not a better investor and he almost never beats the AIM investor in een typical market condition.

It's just another way of looking at it!







Conrad

[OldAIMGuy]

HI K, AIM was actually built for cyclical stocks. It has a harder time with positive slope.

There's hundreds of cyclical stocks that are not particularly exciting but financially strong.

We don't need next year's hottest stock with AIM to do well overall.

Part of the analysis of a group of stocks being AIMed as one is that some may be moving individually on the opposite direction of the others. This is why sector funds will most likely over time beat diversified funds when AIMed.

This is also true of why the greater volatility of one stock helps AIM to accomplish its goals. Then it's a "sector of one."