Hi Mark and Bernie, The period of trading is one of those areas that will remain subjective, I'm afraid. With nearly 8000 stocks available between NASDAQ and NYSE and about 11,000 mutual funds trying to get your attention, there's no set rule that's going to be right for all cases.
In my 13 years of AIMing, I've found that certain stocks, industries and sectors act differently from others. When Bob Norman asked me what period of updates would be right for his Newport software I told him once every two weeks.
That was back in '91 or '92, I believe. I was trading my various stocks on a bi-weekly and monthly basis as I "interpreted" their need. It was when I added a 26 week moving average to the line graphs in my ancient Lotus 123 DOS AIM template that I saw that some stocks needed more attention than others.
Once I began to think about lots of potential users of a software trying to AIM and keep their interest up, I had to agree with Bob that weekly updates kept the investor focused much better than bi weekly or monthly. Heck with Short Term Memory Loss, even weekly might be too long!! :-) It was then up to the user to decide how often to actually implement trades. At least he/she was paying close enough attention to see that some AIM action was being recommended.
Here's a general rule for you to consider:
Look at very long term charts of the stocks in which you are interested (ten year charts recommended, or Value Line's). If there appears to be a cyclical pattern, attempt to guess what the period of that cycle is. Adjust your frequency of trading to that cycle. Short cycle stocks deserve a more frequent trading period, long cycle stocks should be traded in a more relaxed fashion.
Take a high income producer like ACG (long term bond fund). The interest rate cycle is VERY long. No use hurrying it on the buy or sell side as the trends last a very long time. In this case, as Bernie suggested, it would have long term harmful effects to burn up all one's cash in the first three months of a two year decline by trading too frequently.
At the other extreme is something like a DotCom. There frequent trading on the up side of the curve is HIGHLY recommended as those "no revenues, no earnings, lousy business model" stocks deserved to never be anything but speculations. I guess one could modify one's thinking about such stocks as IPO's and say that one would AIM them to the peak and then just never buy back shares!
My investment in capital equipment companies had led me to feel that knowing the business cycle of the sector is the way to judge the frequency of actual execution of AIM trades. The Energy sector is another long cycle industry where too frequent trades is counter productive.
UOPIX was a new creature. AIM can handle it, but it's radioactive and must be handled with care. If everything was already known about investing, it would become much less interesting. UOPIX has only been around for one large cycle. That's hardly enough time to have all the answers. This is why I recommend using very long histories when using simulation software. Long histories give flavor and texture to what AIM's going to do.
Unfortunately, even though I was familiar with the Nasdaq 100 Index, I never thought to construct a 2X model of its price movements going back many years. I figured my "experience" as an AIMer was enough. Had I constructed a 10 year history maybe I would have seen frequent periods of 100% investment reached before the price cycle had bottomed.
I still think that UOPIX (and other 2X funds) is a great potential investment. I still know the AIM strategy is the proper one for management. I'm still contemplating what the changes in tactics will be for AIMing it. It may be something similar to what Mark suggests in using the IW as a guide to frequency of trading, SAFE levels and or switching to the more conservative QQQ for the ride down and buying cycle. I don't know yet.
I've even though about using AIM's buy market order size as a signal for UOPIX buying. Let's say that after March 2000 the price of UOPIX is in decline. We don't make any buys as long as our weekly updates with AIM show ever larger suggested market orders. Then, when we see the market order start to decrease in size, we make our first buy. Again, I've not yet modeled such a thing, but I'm sure that the cash would have lasted longer with such a concept. It's not AIM BTB, but it's still AIM. Just massaged a bit. It's the difference between Strategy and Tactics.
The rest of my family sleeps later than I do on Saturdays! I have a nice quiet house in which to compose this COMPOST!!!!
Best regards, Tom |
