I agree that, as markets drop, positions become more correlated. But, rebalancing a diversified basket of stocks and/or ETFs will still not need as much cash as one position.
Reading from the recent posts it seems the issue of cash reserve is the point of debate - how much is enough? It seems to me that Praveen's system is akin to Lichello's original design of having one cash reserve for the whole portfolio, whereas I think many AIM users now tend to AIM each holding individually, such that each has their own cash reserve level, portfolio control, and so on. I do think his system favors the macro approach and letting the stocks (or funds) act like the "money pumps" from each position, taking care of each holding individually. It does keep things simple - a point upon which Mr. Lichello and Praveen seem to want to concur.
Also note the Praveen's system, if followed BTB is checked at a rate 1/12th of AIM's original minimum - annually instead of monthly. Some even recommend AIM checking daily or weekly, so his will move in a slower, but hopefully more predictable manner. In this case the timing of 2008 may well have been something of a "black swan" by virtue of happening at the end of the calendar year. Had the bottom of the down happened in June-July, for example, his calendar cycle wouldn't even have noticed.
Just as Lichello reduced the cash reserve as the bull of the '90's was in full rampage, Praveen's 30% max seems reasonable, given his timing and absent more flying black swans, coming in for a nosedive!
My 2 cents worth on this one.
Best,
AIMster
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