Hi HT, The PCA software allows you to put in lots of historical data and then change the SAFE parameters to see what would happen with these new values.
As a broad brush, if you are thinking of using AIM with diversified mutual funds, split SAFE into two components and set the Buy SAFE to near zero. This maximizes AIM's positive feedback loop to Portfolio Control and has AIM buy more aggressively. Keep the Sell SAFE near the 10% mark and keep your minimums for trading as small as possible/practical for the transaction costs.
Second, it has been my experience that diversified funds take about two steps forward for each they take back. Over time AIM's cash reserve would become way too large relative to the invested portion if it were followed to that extreme. You can make periodic adjustments to the Portfolio Control to replace some of the SELL orders along the way and keep the overall cash reserve level to a more logical amount. Typically for "aggressive growth" type funds, a 33% cap on the Cash Reserve works quite well. For a "growth and income" type you could probably reduce it to about 20% of total value and essentially never run out of cash.
What's going to be optimum for one fund might be different for another. However, having a good feel for just how AIM works in the first place is VERY important. Please run standard examples first, analyze the shortcomings and then set about making minor changes and see if things improve. Over the years I've done countless "what if" examples. The two simple changes for mutual funds of altering SAFE and capping cash gave the biggest bang for the buck. (see execpc.com for a summary)
Individual stocks are trickier. Very conservative stocks may do well with a 33% cash reserve max. but companies with higher BETA measures and more rapid (irratic) growth might still require a 50% level at times. I split my Idiot Wave into two pieces, one for mutual funds or conservative stocks and the other value for more rapidly growing stocks.
Remember that AIM was designed to be a very simple Equity/Cash proportioning device. There's a million ways to complicate our lives and then there's AIM to simplify it. Please try not to complicate AIM so much that it loses its simplistic beauty. You'll be happier with the results.
There's also been attempts to change the size of the "feedback loop" with AIM. I think some have made it work, but it's a very individual thing. One of the correspondents has changed AIM's buying habits with a "half way to the wall" strategy. All these ideas can be explored, but again it's good to understand the initial program first. Proportional control devices are peculiar animals. When we tinker with them sometimes the pendulum can get swinging pretty wildly! If we don't know where we started, it's harder to get things back into control.
We'll all be happy to help with our combined experiences, so keep the questions coming.
Best regards, Tom |
