Hello Barry and Bernie,
I always find posts between the two of you very interesting because, as far as I can tell, you both have polar opposite views about AIM.
Bernie believes in AIM BTB and doesn't think that anything but the most basic mathematics should be used when explaining AIM.
Barry, on the other hand, believes that AIM BTB can be improved and uses sophisticated mathematical models to test his theories.
Based on these two views, there is bound to be disagreement.
As most are aware, my leanings are towards Barry's view. I definitely believe that AIM BTB can be improved -- and in a few short months I hope to back it up with facts that everyone can see (when Automatic Investor 2.0 is released).
That being said, however, Bernie's viewpoint is probably a good one for people who are starting out and are just learning AIM (it is dangerous to muck about with AIM when you don't know what you're doing. Unless you can extensively test your modifications over all market scenarios, you cannot be sure your modifications are beneficial). As far as I can tell, Bernie has been successfully using AIM BTB to manage his real money for a number of years. Therefore he has real-world experience and I think everyone can learn from that. Similarly out of all the AIM "enhancements" I've seen, made, and tested, most of them don't work and many are detrimental. So most people would be better off sticking to AIM BTB -- a proven system that's been scrutinized by many, many people for many, many years.
However, if someone understands the theory behind AIM (and make no mistake, it is MUCH more complicated than RL describes in his book -- for example there are cases where you will end up with better returns when you pay a higher commission per trade, now that doesn't seem to make sense, but it happens nevertheless), and thinks there is a better way of doing things, then he should be encouraged. His results can then be evaluated by the AIM community and either accepted or rejected. That's how Tom Veale's changes became standard AIM fare.
As an example, let's take cryptography (the field of encrypting/decrypting information). Everyone probably uses it many times in a year. (e.g. If you've visited a secure server to purchase something online, you've used it.) However the majority of people don't understand how it works (compared to AIM, these algorithms are orders of magnitude more complex). For many years there was a standard algorithm implemented that was used by literally millions of people (let's call it Cryptography BTB -- or CBTB). CBTB users could explain it with NO mathematics whatsoever (i.e. I have plaintext, I run it through the CBTB algorithm and it produces ciphertext). And it worked very well for them in real life.
However with the advent of faster processors, more research and smarter people (who of course had the entire works of those who came before them as a starting point), CBTB was found wanting. So some Barry types did some research and came up with improvements (let's call it TRIPLE CBTB). These improvements were analyzed by the Cryptographic community and accepted. Then they became standard. Currently there is even more research going on to improve TRIPLE CBTB. So as new technologies become available and more information is analyzed, improvements can be made.
That is why I don't accept that Robert Lichello came up with the ultimate investment system 24 years ago using simply a pencil, paper, and a small subset of the information we have available to us today.
In the world of Cryptography, people are encouraged to do the following:
1. Break algorithms that have already been broken (so you demonstrate that you know what you're doing).
2. Attack mainstream algorithms that haven't been broken (and if you are successful, people will listen to you).
3. Devise new algorithms.
If you skip directly to step 3, nobody will take you seriously (because there are many people who claim they've invented the unbreakable cryptographic algorithm). Since serious cryptographers have limited time, they only analyze algorithms from people who have proven they know what they're doing. So all three steps must be followed. Keep in mind that most users will never attempt any of these steps, but it would be detrimental to them to discourage those who are attempting the steps -- because users will eventually profit by being able to use a better algorithm. Also keep in mind that there are thousands of algorithms that are disregarded because they aren't secure or they don't bring any advantage to the table.
Now if we transfer this to the AIM realm, it makes complete sense for users to follow Bernie's BTB mantra. Most aren't interested in researching or even understanding how AIM works under the hood. All they care about is that at the end of the day, their investment account has grown and they've minimized their risk in the market. And that's fine.
However it is also fine, for the Barrys and Toms of the AIM world to continue researching and making improvements and questioning how and why things are done. It only helps to move the AIM method forward. Not everything will be accepted, but even if one significant improvement is discovered, everyone in the AIM community will benefit.
Finally regarding Portfolio Control. My view is that PC is the amount you are willing to risk in the market AT THE PARTICULAR MOMENT IN TIME WHEN YOU STARTED YOUR PORTFOLIO. Over the history of your portfolio's life, however, the amount you are willing to risk is the amount you've invested in the ENTIRE portfolio. This makes sense, because if you weren't willing to risk that entire amount, when AIM recommended you purchase more equity, you wouldn't do it. The fact that you're prepared to do it means that you're willing to risk that capital.
BTW, Bernie and Barry, please don't take this as an attack on either one of your views. I continually learn things from each of you. I just thought I'd add my own views.
regards,
mark. |
