Replies to post #35465 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

HU Kast

Could use a little help in making sure I understand the following:

1. V-Wave. If I understand correctly this is an indicator that helps determine how much cash to hold when beginning a new AIM program. The last v-wave reading posted was around 52.85, so it looks like I should just start out around 50/50 in cash and holdings. After a program is underway then this indicator is used as a way of controlling the overstock of cash in a bull market, is that correct? If our cash% is at or above the v-wave then should we ignore the sell signals but change our portfolio control number by 1/2 the sell signal (normally increased by 1/2 of the buy signal)? I just want to be sure I understand this part because I'm a little unclear on this. I also have no idea how to calculate the v-wave so I'd have to rely entirely on it being posted on a regular basis in this bulletin board.

The V=Wave was only MEANT to START an account. In order for AIM to control an account the buying and selling will make the cash reserve go up and down. That is the nature of AIM. I suppose you could just hold the percentage of cash that the V-Wave says for each account but then it wouldn't be AIMing and I have no idea how effective that would be.


2. Split SAFE. If I'm going to be trading all Vanguard mutuals and ETFs with no commissions (through an account in Vanguard), should I just take ALL buy signals? Would you recommend a 0% Buy and 10% Sell in that scenario? The mutual funds I'll own are more aggressive and I'll trade each fund in a separate AIM account. I also will hold a couple of ETF funds (REIT and Emerging Markets). AIM "by the book" is 10% sell/buy but I'm trying to figure out how to best utilize the Split SAFE method that Tom and others have written about. Any advice on this would be appreciated.

I prefer the balance of standard AIM. I believe Tom uses 0% sell SAFE and 10% BUY SAFE to be more aggressive in selling and then uses "VEALIES" when the cash level gets higher than he wants. I definately wouldn't do the reverse.


3. Dividends. I'm still unclear on if it's better to reinvest dividends in shares or take the dividends and deposit it into the cash portion of my AIM program? I'll be trading entirely in a retirement account for now (roth and ira), so I don't know if that makes a difference?

Reinvesting dividends is too much record keeping for me, even in a retirement account where there are no tax issues. Just dump the cash in a Money Market account and don't worry about it. You can allocate them to each individual AIM program if you want. It will allow you to buy on bigger crashes when the next one occurs. PS I wouldn't worry about going even as high as 80% cash. It will just keep you from running out on the next drop. You are starting at 50% so you have to be willing to go to at least 60 to 70% cash


4. Intervals. At one point Robert mentioned in his book that the AIM program might have better results if run on a 2 week schedule instead of a monthly schedule. Have any of you compared these results? What interval do you recommend for running an AIM program?

I would wait at least a month between trades. That doesn't mean you can't use GTC orders to sell . I would be less likely to use them for buying. You will find there is usually a long time between switching from buying to selling (because it has to move 30%) but sometimes you will have a trade each month in a row as you have consecutive buys or sells.


Those are the areas that I could use a little help in understanding. I have already learned a lot from you all just by reading the posts here each day. Thank you all for taking time to share experiences and wisdom.

I'm excited to make my first purchases this week and FINALLY begin my journey with AIM.

Good luck and don't make it more complicated than it has to be.

Toofuzzy

[daisy42]

Lichello clearly said operating AIM fortnightly is an option - a "definite maybe" were his words, I think, "if you want more action". Although I don't think he gave any worked-through tables, he said this would probably be more likely to use up all your cash in a deep down market - he seemed to be saying this more in the sense of 'utilise' than 'exhaust' though, in other words he seems to suggest it could be a good thing. Those with AIMing experience post-2000 may well say it is much more likely to exhaust your cash too soon, so you have nothing left to buy with near the bottom. The Cash Burn chart is the guide.

As a recent AIMer of a few months experience I find waiting a full month is hard. Being new to it means the desire to see some AIM transactions is strong - which must be a bad reason. I have a gold stocks fund for which AIM is asking for another 12.5% of its current value, it having had 7.5% at the end of April. I'm pretty sure the 'master AIMers' on this BB will advise me to wait until the end of May! I started the position with 50% cash. Lichello wanted people to be able to get on with the rest of their lives!

At this stage I am operating all the AIM parameters on all my accounts at the default position.

Daisy

[OldAIMGuy]

Welcome Kast and congratulations on giving AIM a try,

1) v-Wave: It's a variable indicator that relates to general market risk and the cash reserve of an AIM account for both starting purposes and also as a benchmark for where your own cash levels are with an ongoing AIM'ed investment. It's probably conservative for diversified mutual funds, less so for business sector funds and is about right for BETA 1.00 stocks. It might be a bit aggressive for IPOs and stocks with very high BETAs.

2) Split SAFE: Personally after a couple of decades of AIMing with Split SAFE I'd suggest that my article at aim-users.com be used as a reference and not gospel. During a raging bull market it may seem to be good to stage all the SAFE on the Sell side, but when the bear comes out of hibernation it complicates AIM's feedback loop to the Portfolio Control.

Today if I subtract something from the Total SAFE (buy plus sell) I take it from the Sell side only. If I want to keep SAFE at a full 20%, I normally stage all of it on the Buy side. The reason is that Cash is finite in AIM where Stock Value for selling is infinite. Almost NEVER do I let Buy SAFE drop below 10% because of feedback to Portfolio Control.

For diversified mutual funds, usually 10% Buy SAFE and zero Sell SAFE works well. However, I also use a 30 day delay between sequential buys, even on mutual funds. The more specific the fund (such as business sector funds, REITs or emerging markets) the more I add to the Buy SAFE. It's rare that I use over 20% total SAFE (Buy plus Sell). If I have an urge to use more SAFE than that, I usually then increase the value of my minimum trade instead (say 7.5% or 10% of Portfolio Control as a minimum order value).

The other reason I do this now is that I habitually use "vealies" to contain a portfolio's enthusiasm for building up too much cash. That acts as a surrogate for having a fat Sell SAFE.

3) Dividends and Distributions: You're right, in a retirement account it makes very little difference whether you take distributions in cash or shares. AIM is a very effective purchasing agent. So, it tends to be a little more efficient when buying shares than having the dividends reinvested (dollar cost averaging). This is a very subtle difference, however, and takes years to see. Also, since I use "vealies", Portfolio Control recognizes the distributions periodically during long bullish markets.

4) Frequency of Selling should be as often as AIM suggests there are profits to be taken. (assuming you aren't swimming in Cash compared to the v-Wave.) Generally I use "Good Until Cancelled, Limit Orders" for selling and size the orders as "minimum." That way, if the market comes to my price target, the trade almost always gets done whether I'm watching or not. I then recalculate the "next sell price" and enter a new GTC Limit order.

Frequency of Buying is a different story. As mentioned above, our cash reserves are finite, but our supply of equity is infinite in an AIM world (note: the LD-AIM variant can exhaust the equity side). To slow AIM's enthusiasm for spending down our reserves of cash, it's best to stage sequential buys 30 days apart. That allows us to continue buying during protracted Bear markets for a longer time. I've been using the "30 day rule" relatively uniformly for over a decade and feel it's been a major improvement considering the market turmoil we've seen in that time.

I hope this helps,
Tom