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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: Dataminer1 who wrote (6827)	2/10/1999 9:30:00 PM
From: OldAIMGuy	Respond to of 18928

Hi Bill, I'm glad the IW's starting to have some meaning for you and others. I've been keeping the data so long that it feels very natural to me. "One real gem of a statement I recall hearing from you recently is "return on capital at risk". This gets to the essence of AIM and I am working on a way to quantify it." The way I have calculated the "ROCR" is to take the "average equity position" for the last 12 months and use it as the denominator and divide it into the total gain for that investment for the year. So, if we had $50,000 average at risk for the last 12 months and we earned $10,000, it would be $10,000/$50,000 = 20% Return on Capital at Risk. Now if the account was an average of 50% invested for the year, it would only show a 10% gain. Another way to calculate it is to use the average percentage invested for the last 12 months and divide the percent return by that ave. percent at risk. So, if you have a 10% return total and the account was only 50% invested, then 10%/0.50 = 20% return on equity at risk. Either way, it's the same answer. We know there's a cost for the "portfolio insurance" we carry in the form of our cash reserves. But, when it's needed for its insurance value, it pays us very handsomely. After all, it is kind enough to earn nearly 5% just sitting there and then when we do use it it turns a LIFO gain of 20% or more in short order before going back into the reserves. So the average return on the cash is much higher than the apparent 5% that the MMF's pay us when it's idle. At best it's another way for us to understand what's happening inside AIM. At worst, it's a great way to rationalize what we do!!! Best regards, Tom