Hi Bud,
2000 was such an unusual year that to base all future AIM settings upon it would be a mistake in my opinion. Whether we talk about UOPIX or Milktoast, Inc. it doesn't matter.
When the knives are falling, the saying goes that we shouldn't attempt to play catch. This is where having discipline in frequency of buying helps. It may not cure all ills, but it does help.
In a rapidly falling market, AIM, whether done on paper or with the help of electrons is going to most likely "pump the brakes" as Mr. Lichello describes. It will signal you to make a purchase. If you were to use even the same price and recalculate, it would tell you to buy more shares to complete the purchasing at that particular price. Well, if you weren't to recalculate for a month, then you might get entirely different suggestions from AIM.
Everyone likes to sell the ultimate top and buy the ultimate bottom. Well, if we stick to assured minimum trades then these trades will represent only a small portion of the AIM account's value. Therefore, if we miss the top or the bottom we're only missing a tiny trade.
If we stage our trades on a regular period, then we'll either get a minimum trade, a larger trade or no trade at all. That's about as good as we can accomplish. There are always consequences to every decision we make. That's part of why AIM by the book is pretty hard to beat on a long term basis. The basic settings and time periods fall into the "do no harm" category. Any work we do to increase our return usually also will increase our risk. It's still impossible to de-couple risk and reward.
So, I guess if I were to guess, the best thing we could have done last year is to realize that the overall market volatility potential was huge, that a 2X fund's volatility was going to be enormous. The Idiot Wave certainly gave us adequate warning. I shifted the SAFE bias to the Buy side to slow buying. I further expanded the Buy SAFE to slow it even further on my high BETA and high P/E stocks. I also kept to periodic buying to conserve cash even further.
Unfortunately, I didn't do it quickly enough or to a great enough extent on UOPIX. It was an unqualified investment like none I'd tried before. I had seen what it did in 1998 in the Fall of that year. I had set my parameters based upon that. I figured I could run with a 50% max cash reserve and full 10% on both the buy and sell sides of SAFE and be fine.
If you go back to March and the collapse that happened then, there was actually a bounce with some selling opportunities for AIM. However, after that there were very little in the way of chances to do anything constructive except panic! The 26 week moving average was looking like a cliff! It's still falling at this point.
I feel badly that so many people followed me on the UOPIX wild goose chase without any understanding of the true risks involved in something as deeply leveraged as it is. I hope that a recovering market will eventually get all of us out of the dog house.
Best regards, Tom |
