Hi Keith,
Boy! This board is getting into some deep discussion here! Great to see, but it takes a little while to digest it all. I want to address your posting about the software products.
You asked:
We basically have three Software Products available for our AIM risk management plan.
Automatic Investor - Mark
Newport - Bob
PCA - Bill & Doug
Are all three of these products based on the formula as set out by Mr. "L" in his AIM book? Or, are each their own interpretation of that formula?
I can only speak for Newport and how our program is set up.
Newport started out as a spreadsheet program in order to eliminate the 13 column paper and doing the Lichello formulas by hand. We did a lot of experimenting with changing the trading parameters (safe levels, minimums, portfolio control) in this spreadsheet. This is also when we decided that a weekly update produced the best overall result in most cases.
The first stand alone version of Newport (the DOS version) was designed to allow the flexibility of changing the trading parameters, but it, as well as all of the versions since, have always defaulted to AIM "by the book". We haven't altered Mr. Lichello's formula. The program defaults to 10% safe and 1/3 cash reserve. We give the user the option to change these as well as set their minimums for a trade.
We send a copy of Mr. Lichello's book along with the program. We believe it's absolutely necessary to understand the trading method and not just relying on the software to make recommendations, and then blindly following them. When you understand the theory behind the program you become a much better user of the software. I think you're also less likely to go to extremes in changing the trading parameters.
As Mark said, you may find minor variations in the 3 programs due to different methods of rounding and truncating, but if you run the program by the book the results should be the same
One of the enhancements that we fretted over for quite a while was portfolio control adjustment - aka a "Vealie". Allowing users to change the number that controls all of the calculations was something we weren't sure we wanted to include. We decided to allow for portfolio control adjustments in our program, but as a hidden option because changing your portfolio control changes your risk level. You are increasing the amount of risk you are willing to take when you increase portfolio control. This is something that should not be done without a lot of thought.
I personally think the Vealie is one of the best enhancements to come along for AIM. Mr. Lichello recommended selling out of a stock after it had tripled. The Vealie allows you to stay invested in something you have faith in without a large cash reserve becoming an anchor. Also, selling out would create a tax liability in a non-sheltered account.
Every investment is different, and we've allowed for changing the trading parameters in order to fine tune AIM to fit the situation. But I think some people are forgetting that AIM was invented to take a lot of the emotion out of investing. That is - Don't get scared and sell when the price drops, and don't get too greedy thinking the price is going to continually rise. By tinkering too much with the basic AIM formula you can let your emotions get back into the equation and defeat the purpose of AIM.
OK I'm done preaching now.
Bob |
