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Strategies & Market Trends : A.I.M Users Group Bulletin Board
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To: jackfx who wrote (18606)4/21/2020 9:47:33 AM
From: OldAIMGuy1 Recommendation

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Condo

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Good morning Jack, Re: MRI value and AIM suggested cash reserve...........................

Thanks for the Question. Each week I calculate two values - one for diversified stock portfolios and diversified
mutual funds and another for individual company stocks being AIMed as singular engines. The "9" shown this
week is the suggested cash reserve for diversified equity mutual funds or large portfolios as a single AIM
engine. That can be considered for starting a new AIM engine or where cash levels might be for on-going
engines.

For individual company stocks, multiply the diversified value by 1.5x. That puts it around 13 right now. That
would be the suggested cash for starting or an on-going AIM single stock engine.

When risk is extremely low, like now, those two values get sort of crowded together. However when we're at
median risk of 26% suggested cash then the individual company stock cash is 39%. The reason for the two
values is to account for "single stock risk." Diversified portfolios just don't have the same amplitude of price
change as individual company issues in general. So, a large diversified portfolio or a mutual fund will require
less total cash commitment over time than will a single stock. An individual stock might give more frequent
and larger round trip cycles requiring more cash being held in reserve. A diversified fund generally requires
less total cash commitment as cycles are not as abrupt or frequent.

So, there's a trade off of being generally heavier in equities with diversified holdings or keeping a larger
individual cash position for single stocks. The 1.5:1 ratio helps to balance out this trade off.

Hope this helps,
OAG Tom
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