Thean wrote:
<<<However, if you were to have implemented the AIM system three months ago, or even any time this year, what you would have accomplished is to average down and ended up catching the falling knife at every point of tumble.>>>
If we had implemented the AIM system 3 months ago, it would have been with a considerably higher cash level. I was using the level set between 0 and 100% in accordance with securitytrader.com site reading of the percentage of companies within the group trading with positive P&F patterns. The higher the number of P&F patterns, the higher the cash level would have been. 3 months ago that pattern was screaming that the group was too high and the cash level would probably have been around 75%. The 25% cash level was set since the group appeared to be in a basing pattern, yet had not yet bottomed.
In any case, you are correct that the losses if we had started the AIM portfolio would have been terrible up to this point, but the buy and hold portfolio would have been significantly worse simply because the large cash position would have cushioned the fall.
Now as for averaging down and catching a falling knife. The AIM system is set up to selectively buy and sell according to a fixed discipline. If we had started the portfolio at the very peak, you are correct, the AIM portfolio would have just bought and bought and bought all the way down. If we had started in March however, the AIM system would have actually raised cash into the rally. If we had started in January, it would have bought right thru March, then sold, then would now be in a buying mode again. One of the things that I did when I looked at the Buy SAFE and Sell SAFE points is to tune them to fit the volatility patterns exhibited by the individual stocks.
I'm not trying to say this system is perfect or even wise at this point in time. I just wanted to clarify some of the finer points in how the model was initially set up. This system is more subtle than it would appear on the surface.
FWIW,
I did a study of the 9 of the 10 possible stocks in the Offshore
Drilling Bits universe and found these results for a $10k initial
investment, 25% initial Cash level and $1000 minimum trade:
FGII - 7/22/97 - 7/8/98 AIM - $22,252 vs. B&H - $22,646
EVI - 2/03/97 - 7/8/98 AIM - $15,077 vs. B&H - $12,016
VRC - 2/03/97 - 7/8/98 AIM - $17,853 vs. B&H - $14,178
RIG - 2/03/97 - 7/8/98 AIM - $15,668 vs. B&H - $14,333
RON - 2/03/97 - 7/8/98 AIM - $15,725 vs. B&H - $13,594
CXIPY- 1/29/97 - 7/8/98 AIM - $18,910 vs. B&H - $20,307
MIND - 2/03/97 - 7/8/98 AIM - $17,081 vs. B&H - $11,284
CDG - 4/03/97 - 7/8/98 AIM - $15,133 vs. B&H - $10,625
DO - 2/03/97 - 7/8/98 AIM - $13,617 vs. B&H - $11,404
Now this might not prove much. Anyone who bought an held from 2/3/97 thru early July is either very patient, or not paying attention. As you can see the buy and hold strategy worked better for CXIPY and FGII, but in the more volatile stocks like CDG and MIND, the differences in strategies are significant.
In any case this is an academic exercise, what counts is the real money you make or lose.
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Dave |
