Replies to post #33793 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

hi conrad

The problem is you can not optimize for the future ..... only the past ...... so you might as well use 50 -50 .

Clive wrote something I find interesting. 50% of investors must think a stock will go up and 50% down. Other wise the price would move.

Toofuzzy

[ls7550]

I have been searching for some information on your 50/50 suggestions but found none that give 50-50 as an optimum starting split for investing in arbitrary stocks. In one example one "advisor" came up with 3 different ratios for 3 different investors buying the same equity. For a conservative beginner he suggested 60% or even more in cash and he himself said "I like more risky approach, so I go for 70 stock as in the long run it earns me more on the average.

Don't confuse asset allocation weightings with individual AIM settings. The choice of asset allocation and weightings to those assets generally accounts for most of overall gains/losses.

Generally stocks are more often over-priced than under-priced and as such cost averaging in or lump summing in is likely to overpay for stock. Overpay for stock initially and you're more likely to under-perform the market average. Buy at a fair price and you're more likely to achieve the market average. Buy at at below fair price and you're likely to out perform the market average. The best way to pay a below fair price for stock is to cost-average-down the average cost of stock over time, and AIM is one method to achieve that cost averaging down by repeatedly adding low, reducing high. On average, the most reliable allocation of stock and cash to maximise that averaging down is with a 50-50 split and use constant weighting methods to periodically rebalance back to equal weights.

So you might asset allocate in whatever weightings you deem to be appropriate (i.e. Tom prefers a form of Ultimate Buy and Hold asset allocation). Within that you might run individual AIM's and generally the best choice with risk adjusted rewards in mind is to use 50-50 AIM settings in those individual AIM's.