Replies to post #36233 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

Hi RCA

Don't make your life more complicated than you have to.

1) AIM was supposed to start 50% cash and stock

some people asked "what if the market is really high or low? Should I start with a different ratio" "Is now a good time to start investing at all?"

2) Tom cam up with the IDIOT Wave (for idiots obviously! ) Later changed to the more politically correct and and not proprietary V-Wave. The idea being that when you START an account you let the V-wave tell you what percent to put in cash based on where in the market cycle stocks are in.

Stocks have had a good run lately so I would be inclined to put at LEAST 50% in cash which is what the V-wave suggests also.

3) The V-Wave is meant to only be used to START an account, though it can be a loose guide to see if your total portfolio is in tune with the market.

Toofuzzy

[OldAIMGuy]

Hi R, Re: v-Wave usage....................

Let's start over. First let's separate the v-Wave history and structure from its usage.

1) v-Wave Structure and History
The data was gathered from VAlue Line to build a decent base for analysis. From that it was decided it could be used as a barometer or scaling device for the cash reserve portion of an AIM account.

It was then structured so that the highest appreciation potential would be when AIM in theory was out of cash. The lowest appreciation potential would occur reasonably close to when we'd raised the most total cash. The total database if viewed as a bell curve would have 80% of the data be in the Neutral range with 10% extremes being at each end of that neutral zone. Those would be the bullish and bearish zones and be exceptional.

So, 10% of the data currently falls below 38.8% cash for stocks (25.9% for diversified funds) and can be considered the bullish end of the v-Wave. Another 10% of the data falls above 59.1% cash for individual stocks (39.4% for diversified funds). The 80% in the middle is Neutral and only its direction (increasing or decreasing) might be of some specific value relative to market risk.

2) v-Wave use........................
How one decides to use the v-Wave is probably a personal choice. One could ignore it completely or track it to see if it has meaning relative to AIM's usual activity.

If one invests with AIM as a manager in individual company stocks as individual AIM portfolios, then one should probably monitor the Stock cash weekly level and watch for the bull/bear thresholds.

If one invests with AIM as a manager in business sector ETFs as individual AIM portfolios, then one would be wise to use something less than the Stock weekly cash reserve suggestion but more than the Diversfied Mutual Fund suggestion.

If one invests with AIM as a manager in diversified mutual funds or ETFs (style based ETFs for instance) then one can monitor the weekly diversified mutual fund v-Wave suggested level as a guide.

If one invests in stocks with a BETA of 1.0, the suggested stock v-Wave is probably a good conservative choice as a guide. However, if the BETA is higher than 1.0, then one should probably factor in that higher BETA in some fashion. I've not fiddled with the "how" but do feel that a stock with a 2.0 BETA is probably going to need more cash in a market swoon than one with a 1.0 Beta.

Right now, the v-Wave weekly value is much closer to the High Risk or BEARISH end of the neutral range than the Bullish end. That said, one can temper one's exuberance and hold back a bit more cash in case the v-Wave is right about the risk level in the market place.

For me, I use the v-Wave as a barometer and a cash ceiling target for my individual AIM holdings. If the v-Wave is suggesting 25% cash for a diversified mutual fund and I am AIMing such a fund, I'd love to see AIM triggering sells all the way up to around the 25% mark. But would it make sense to let AIM continue to keep selling when the cash goes well above the suggested v-W level?

So, if you want to buy a company stock and the v-Wave is showing something above the High Risk threshold, maybe you might want to reconsider that initial buy until risk has fallen back at least to the neutral range. If market risk is "high" and the v-Wave is giving a bearish signal, shouldn't we consider that before commiting money to the market?

If market risk, as measured by the v-Wave is very low and is bullish, should we hesitate to invest in a quality stock? Maybe every headline in the financial press is screaming about the terrible BEAR MARKET going on, like they were during the worst of '08-'09. Nobody wanted to buy ANYTHING at that time. Things were so BAD! However, the v-Wave was saying that one should jump in at the deep end and do so with a very much reduced suggested reserve of cash compared to a year earlier.

The v-Wave doesn't tell us if an investment is risky or not, it only tells us about the relative market risk. It also acts as a guide to whether our AIM accounts have been active selling enough shares to match potential market risk.

It's not perfect, by any means. JDerb posts the value weekly and one can pay attention to the potential risk profile and change. If your accounts are actively selling and the v-WAve is rising in risk profile, you should be happy AIM's taking care of you. If your stock is falling in price and the v-Wave says the market is in its neutral range and not changing, maybe you need to take a second look at the fundamentals of your holding. If your stock price is falling and the v-WAve is also falling, then chances are your stock is just being sucked down the same drain pipe as the rest of the market. Its probably is a Market Event, not a Company Event.

After years of watching my barometer on the wall, I know that when it's rising it's quite likely we'll have clear cool weather. When it's dropping we usually see warmer and wetter conditions arrive. This is similar to the v-Wave. We would like to be warned befor hurricanes and droughts, but the rest of the time we just need to keep our AIM accounts doing what they need to do.

Best regards,