Replies to post #16875 on A.I.M. Users Bulletin Board (AIMUSERS)

[The Grabber]

Hi Ken.

My main comment however is that use of LD AIM is usually linked with "leverage". Now that I'm retired I'm far more risk averse than I used to be and I avoid anything connected with "leverage".

I'm glad you mentioned this. "Leverage" does have a risky connotation, I agree.

Of course you now understand that the use of the term in context of LD-AIM is in terms of "leveraging" Lichello's AIM algorithm.

What I find ironic is that leveraging the algorithm actually reduces risk (at least in my opinion).

Have a great day!

[Toofuzzy]

Hi Kencc RE Questions

>>>>A couple of things I'm not sure about in your post (and my comments may well be wrong):-
With LD-AIM I would use 5% SAFE and 10% minimum order size. This is important. That keeps the next first trade the same but slows down consecutive trades a little.

My impression is that 5% SAFE and 10% min order size triggers the first trade earlier and speeds up subsequent trades compared to Classic 10% SAFE and 10% min order size?

In general I like to keep the starting CASH the same as the starting ACTUAL stock because of the leverage
I'm not sure why keeping the CASH the same as the starting ACTUAL stock is related to the leverage. I would have thought that CASH can be larger or smaller than starting ACTUAL stock depending on how many buys/sells desired?

My main comment however is that use of LD AIM is usually linked with "leverage". Now that I'm retired I'm far more risk averse than I used to be and I avoid anything connected with "leverage". Therefore I've not thought much about LD AIM before. But now I understand it better, it could be said to be more conservative than Classic AIM in a bear market if the buy&hold part of Classic AIM is set aside through the use of LD AIM - but I'm still thinking about it.<<<<<<<<<

All good questions:

1) Clasic AIM is 10% SAFE and 5% MIN ORDER SIZE (not 10% and 10%). So making it 5% SAFE and 10% min order keeps the first trade the same size but increases and spreads out subsequent trades.

2) I like to keep the starting cash at LEAST as much as the $ amount as the stock. That usually allows for the same # of BUYS as sells. LD-AIM is a pretty agressive buyer percentage wise as a stock (or fund) goes down). Yes starting cash is related to the # of buys you can do. I found if you want your BUYS and SELLS allowable to be the same then you need at least as much cash as the stock you bought.

3) LD-AIM can either be agressive or conservative. I would not tend to use it for investments that pay more than Money Market Rates BUT:

Why on investments that you never trade that do not pay a dividend? Put that money in a MM Fund instead!

So Agressive LD - AIM:

I have 15,000
I will put $7,500 in stock and $7,500 in cash, PC will be $22,500

Conservative LD - AIM:
I will put $3,300 in stock, $3,300 in cash (for AIM program), PC will be $10,000, and I have $8,400 to put in a MM account or short term bonds or to diversify with.(the $10,000 = PC is based on normal AIM $15,000 = $10,000 STOCK, $5,000 CASH)

Since with normal AIM you would be using $5,000 as cash (33%)even keeping cash as equal to starting stock reduces the # of BUYS you can have. That is why I would use that as a MINIMUM and why you rightly questioned it.

Toofuzzy

[OldAIMGuy]

Hi Ken, Re: your thoughts on LD-AIM......
Yes, in a flat or declining market it is a bit more conservative that traditional AIM. Only in high dividend stocks would it be "less" conservative. If the yield from the stock is higher than that of the cash reserve, then LD-AIM would suffer.

In a cyclical bear market or a range bound market, at least LD-AIM would allow for greater diversification of the same asset base than traditional AIM (assuming that it is being applied to individual stocks).
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Re: Pencil and Paper

Last week I spent two days with a guy who wanted to learn AIM but only on paper. Although he liked the pretty graphs the computer made of AIM histories, he's not a computer person as of yet. As we took his brokerage statements and back-tracked his investments for about two years on a monthly basis he began to see that AIM was not "hyperactive." Most months there was no activity at all. He owns a Closed End Fund and two Exchange Traded Funds. Each of the ETFs had triggered just one buy or sell while the CEF had triggered none. The CEF is a bond fund, so that's not surprising. The two ETFs would have performed better had the AIM trades been done when indicated.

So, his own history proved to be "2 for 2" on providing excellent trade points. He was "2 for 3" in getting any trades done at all on these small accounts during the 2 year period. In his case, the minimum order sizes represented over 25% of the stock's value. This proved to be a major inhibition to trading. Even with SAFE reduced to zero this still was nearly too much for any trades.

I described LD-AIM to him, but it ended up being "one thing at a time" as his first choice. I'm not sure he understood the concept and the idea of keeping track of "virtual shares" spooked him. In this case, however, he would probably have been able to create accounts that were more active as trading accounts and therefore wouldn't have missed the couple of buys and sells this idea might have offered.

At least he's up and running now. As he accumulates more in his retirement account I'm hoping that he'll be able to get the min. order size more properly balanced to the size of the holdings.

Best regards, Tom

Best regards,
Tom