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I had a question for everyone. I am reading a book with the stupid title, "How to make 1 million dollars in the stock market.", by Robert Lichello. It is basically an automatic system to buy when the market goes down, and sell when it goes up. Does anything know about this book?

https://www.amazon.com/How-Make-Stock-Market-Autom...

Wow - that brings back a memory! I read this book in the early 80s as a beginning investor, but at the time, trading costs were prohibitive to implement such a strategy. If I remember correctly, his method is a little convoluted, but you're right - it's a mechanical method to buy low and sell high. I don't think I'd want to try this with any individual stocks, but maybe with an index. It flies in the face of momentum investing, however.

I'll have to dig around and see if I can find my old copy.

Cathy

There has to be something to the book, because there are people who have been using his method and are happy with it for 30+ years.

The book introduces an investment strategy called Automatic Investment Management (AIM).

From memory:
Determine your optimal cash:stock ratio.

Every month to quarter you rebalance to keep your desired ratio.

He also describes using bands.

Backtest shows it loses out to B&H with minimal improvement in Drawdown.

During a bull your selling. During a prolonged bear your buying all the way down until cash all gone.

it's a mechanical method to buy low and sell high.

Sometime around 2000 there was a somewhat similar book/strategy called "Five Minute Investing".

The problem with these methods is that they only work in certain specific market conditions. The problem with this strategy is when the stock price doesn't swing far enough to trigger the buys and sells.

because there are people who have been using his method and are happy with it for 30+ years.

a) Says who? The author? Anonymous reviews on Amazon?

b) How many people have used that method and abandoned it because it didn't work for them?

There are some AIM boards, and unlike say YEY, people have been doing it for 30 years and are happy with it. They have no reason to lie. I am interested in any feedback before I try it.

Backtest shows it loses out to B&H with minimal improvement in Drawdown.

Can you provide a link to the back test?

This person claims to have backtested it, and that it works.

https://toughnickel.com/personal-finance/robertlic...

I am not trying to debate this. I am trying to learn the truth, before I waste any money with it.

Any criticisms of the method are welcome.

Backtest shows it loses out to B&H with minimal improvement in Drawdown.
Can you provide a link to the back test?

This person claims to have backtested it, and that it works.
https://toughnickel.com/personal-finance/robertlic... https://toughnickel.com/personal-finance/robertlic...

I am not trying to debate this. I am trying to learn the truth, before I waste any money with it.
Any criticisms of the method are welcome.

Okay, I read the link. His backtest is garbage. "From January 2000 to July 2016" That's not a backtest period. That is a joke. I have looked at many many timing schemes that look good in a certain small(ish) time period but fail when at longer time periods.

You can easily download the S&P500 stock history from 1950 to the present date. I have an Excel file with the monthly S&P500 from Jan 1950 to Jan 2011 if anybody wants the data but can't find it. Also weekly from Jan 1950 to Jan 2016--with yields so you could include dividends. Although just the price-only results would give you a good idea of how well this strategy works.

Given a few hours (and the incentive), I could probably whack up a spreadsheet with the buy/sell rules and do a more rigorous backtest.

Here's a thing that stood out for me:
"1. Initial amount to invest in the stock is $10,000
2. Cash reserve of $10,000 for future purchases."

I think that this will run into the same problem that "value average investing" does. You are holding a very large un-invested cash reserve with the assumption that you will (always) be able to invest that cash at lower values *and* that you will always have enough cash to invest when called for.

----
Poking around, I found my spreadsheet that does GTT (growth trend timing) of S&P500, Jan'1950 to Nov'2021. That's where I would start if I wanted to do a decent backtest of AIM.

Thank you Ray.

I have not finished reading the book, but from what I have read so far, the stock has to move 10 or more in a month to trigger a transaction. That seems like a lot. You could modify the strategy to 3%, or a 3% decline and a 7% increase. You can modify it however you like. I do like the idea of buying more when it is low and of selling expensive shares. It is a lot like value averaging. Also, if the cash was in a close end bond fund paying 6% the money would not be going to waste while waiting for a buy. As I research it more I will share my ideas.

Mark/For anyone that's interested ....My thoughts FWIW

(1) I dont think I am fully prepared to classify the backtest link as "complete garbage" like Ray, at least upfront. A lot of times we get enamored with Stock/Indices data having longer and longer lookback thinking it actually adds Robustness --- that's a bit of a fallacious concept.

Because it depends on the objective of the test - a timing system involving avoidance of bears - might just survive scrutiny if it only covers 2000+ - because if we go back to 1928 ( most long term data sources - GTR1 is 1926 IIRC) - it simply ADDS 2 REAL Bears -- the Depression ( 20 year bear) and Stagflation (1970s - 10 year bear)

So in essence this guys backtest covers 2 bears and 2 bulls - so in some sense one would be initially tempted to call it "balanced"

(2) Except is it ? ie in the context of the strategy pursued.

(3) Full Disclosure : My lens and general ideas are influenced by a test I ran many years back - for a family 529 strategy on the SP500 and NDX100( mostly academic - most 529s only have the Vanguard 500 or Extended option). The basic rules tested were VERY SIMILAR
(a) Money invested in monthly equal amounts - goes to cash by default
(b) "buy the dip" thresholding - all accumulated funds go into the index on weekly threshold drop
(c) Investigation of a threshold/BCC - based only on the index price to exit market
(d) Investigation of 10 year fixed return ( tells you when I was doing it :) ) comparison against DCA and impact of starts

Learnings :
a. Thresholds cant be too low or too high ( like IIRC 7%+ didnt have any returns other than T-Bills for early 1950s starts - ie the 50s were literally the golden non-volatile period for the US stock market.)
b. Starts matter ( from the previous statement - a VERY VERY FAMOUS investor got his start there --- and the rest they say is History!)
c. You are roughly looking at 5-10% for your ideal BTD threshold
d. Blind thresholding ie akin to a profit latch on the way up - Decimates returns.
e. You need some sort of a BCC - in this case I came up with a variant of BCCII ie Slope and BCCIII ie DBE to book your profits and exit.

With these - other than those 4-5 year ( 1951 to 1955 I think) starts you beat DCA ( Not B&H - you cant) - this is DVA vs DCA.

(4) Which brings us back to Ray's contention of the backtest validity - and the notion of adequacy/availability of funds.

First the funds question - I wrote it down ( ie the rules from that link) on paper - algebraically. Its a Geometric progression with corpus allocated 1/2 and 1/2 at the beginning. Being a progressive series - it will NOT run out.

Except its proportional to the degree of the Monthly drop and/or gain and its product - ie Hyperbolic function - which is an arch visually or an upside down one.

(5) This means the initial few hits matter the most- majority of the money will get either Invested or Booked into profits at the 2 ends ( the hyperbola reaches max/min at 0.5)

So you dont really accumulate on the way down - because money becomes scarcer and scarcer. This isnt' meant for a deep bear - ie value buying.

MOST IMPORTANTLY: And this is where at least from an index standpoint ( or for a stock try AAPL) - the longer duration matters. If you extend the stock market data to pre 1900s ( there are a FEW sources) - other than the Great Depression - you can smooth it to an ever Exponential increasing curve.So you end up selling most of it too quickly also.

Net net : The geometric ( or really any block type) selling on the way up is a "Dud" strategy - you really need a range bound index/stock for this to work in that scenario. And if you LUCKY enough to pick Apple during the tech bear - you really shouldn't deploy this AIM thing - whenever AAPL drops precipitously - its associated with some sort of a systemic risk - else it wont give you the dip entry ( For a stock I am guessing it will be 10%+)


THINGS TO CONSIDER/Thoughts

1. This is more suited for Index ETFs than anything else
2. Analyze a drop metric ( use GTR1 if you can or Yahoo! and spreadsheet) - Std Deviation, DDD3 or if you have TA software - ATR ( Average True Range) - over a very long term like 1950 to 2000s -dont include till today - that's the Post or Out of Time validation. The period you want should be like 3 months at least - this determines the frequency of trading the dip. You can do 1 month also if you want to exactly mimic AIM.

Pick a value just under - this will trigger the buy. Higher the value - higher the chance of sitting on cash. While lower the value - higher the chance of depleting all dry powder in the first 1-2 lots and then taking it in the chin in a deep bear

3. Figure out an appropriate BCC rule ( you can just use BCC itself - just because I was constrained by spreadsheet doesnt mean that's the correct way to go)

The system should look like this
a. Start - Just like AIM
b. Buy the dip rules - like AIM with the analyzed threshold
c. Exit all longs on BCC - take portfolio to cash
d. Enter back longs on BCC bullish - all stored cash into index ( Not AIM - you need to go all in)
e. Deploy something like 1.5 or ideally 2x of dip threshold or calc the Upside deviation or something, to book some profits to raise cash for next dip.
f. The above condition exists ONLY post a BCC buy and you are trickling out profits.

DISCLAIMER: Like everything it AINT PERFECT. For example I can readily come up with 2 counter examples of V shaped recoveries ( COVID and Fall 2018) - which can trigger the BCC buy ie sell and then buy - being net negative ie loser and then trap you in a real bear.

But intuitively these should help to keep you on the better side ( I didnt say righter :) if that's even a word)

Hope this helps!
Best

Clarification - for those interested :
"Except its proportional to the degree of the Monthly drop and/or gain and its product - ie Hyperbolic function - which is an arch visually or an upside down one."

The series in question is of the nature of standard compounding

ie

1 - x - x^2 - x^3 .... - x^n etc

where the 2 sides are - for Buy the dip ( Switches sides for the selling/booking profits part]

Additive ( ie incremental investment)

Corpus/2* [ 1 - alpha +alpha*theta]

Subtractive

Corpus/2 * [ 1 - (theta - alpha) + alpha* theta]

Where
alpha = BTD threshold trigger
theta = extent of monthly drop ( treated positively) AND
theta > alpha for the buy to trigger

Thank you so much. That is very helpful. I will need to read it a few times to understand it fully, but it is very helpful.

I must confess that I didn't really understand what anchak said about Hyperbolic functions, etc.

I wasn't able to make heads or tails of what was said in those links talking about A.I.M. Too much handwaving and generalities. It appeared that links posted in _those_ discussions laid out the rules more clearly---but all those links were dead. It also appeared that the discussions pretty much ended sometime around 2016. And, yeah, evidently there were a site or two that you could subscribe to to get the signals done for you. Those are all dead. So it looks to me like people tried it and subsequently abandoned it.

But now I'm curious, and like I said I have the historical raw data for S&P500, and a bunch of spreadsheets that backtest various things. So if somebody could tell me the actual mechanical rules for this strategy I could probably come up with a backtest.

One of the interesting thing that some of my spreadsheets do is to specify different starting dates, so that you can compare a strategy vs. buy-and-hold for different time periods. That also is something that I could probably incorporate without too much trouble.

BTW, one thing that concerns me and raises a huge red flag is all the talk about "modifying" the triggers, have seen mentioned thresholds anywhere from 3% to 10%. That is not a sign of a concrete strategy, that's just flailing.

It also is phony to assume cash returns of constant X%. The 1-year T-bill rate has ranged between 0.05% and 16.72% between 1950 and 2022. You *must* use the current contemporaneous interest rate for the cash balance. And of course you need to go by very short-term rates, not long-term rates, otherwise your cash is subject to interest rate risk. By definition, this cash waiting for investment is short-term.

Oh, sorry. T-bill data from April 1953, not 1950.

Ray - here's what I gleaned from that guy's descriptions

(1) Start with a corpus - $10K
(2) Divvy it up 1/2 and 1/2 - Potential investment and Cash held
(3) You need 2 thresholds/parameters for the strategy -
(a) BTD - Buy the Dip ( I have this as alpha)
(b) STP - Sell the Pop

he has it equal - but realistically for this to even have a shot - STP needs to be a multiple of BTD IMHO

(4) A check on the Theta ie the Monthly drop or pop for it to exceed the alpha ( 1 and 2 if you keep them separate)

(5) Well - you have to kinda get the algebraic formulation - its simplified for a code or spreadsheet implementation.

That's how the Invested side goes up and the Cash held side depletes.

Its a function of the difference between Theta and Alpha applied to the current corpus on both sides - basically you invest based
on the
Additive ( ie incremental investment)

Corpus/2* [ 1 - alpha +alpha*theta]
and obviously take out the $ being invested - which gives you

Subtractive

Corpus/2 * [ 1 - (theta - alpha) + alpha* theta]


And SINCE its applied on a compounded basis - the cash side will converge towards zero but will never reach it since its an infinite series.

Hope you have enough to run this thing!

I am very curious about the results and see if my hypotheses hold up

Best

Also since he doesn't mention it explicitly - and to test how much the strategy is START dependent -

I think one shouldn't initiate an initial Buy till FIRST DROP.

Oh crap! I was worried if I made an error in the expression and looks like I did

A simple sanity check is as follows

YOu have x/2 and x/2 invested ie 5K and 5K say.

And the index drops by 10%

So the total portfolio should be

5000*( 1-10%) +5000 = 5000 ( 2 - 10%)

algebraically - x/2*(2 - theta)

I messed up the sign on the expressions;

Here's the CORRECTED VERSION.

Subtractive side ie CASH LEFT on BTD at each step

C[i]= C[i-1]* ( Theta - Alpha + Theta* Alhpa]

Invested side

P[i]=P[i-1]* (1-theta) + P[i-1]*(1-theta)*(1+alpha)
which simplifies to

P[i]= P[i-1]* (1 - theta)*(2+alpha)

And you can check that if you put initial half and half or x/2 and add these 2
it will equal the x/2 (2 - theta) which is what you ought to have when portfolio drops by theta

On the STP side it goes the other way - ie you need to subtract that term from the invested side and add it back to the Cash side.

Hope this helps!

OK - scrap all the above - My basic assumption is that you will implement in Excel.

I thought thru it -and this is what it needs to have ( Of course on top of your Excel portfolio simulator)

(1) Add these columns to track
(a) Portfolio Value
(b) Cash Value
(c) Buy side
(d) Sell side

(e) Might help to track # of shares too

Also dont have the T-bill ie cash returns or set it to zero initially - because that would facilitate the SANITY CHECK

The simplistic constancy is on the buy/sell sides

Buy side = P[i-1]* (1- theta)*(1+alpha1)

where,
P[i-1] is last months portfolio value, Theta is the current actual monthly drop in Index, Alpha1 is the BTD threshold parameter
Trigger check Theta > =Alpha ( positive treatment, you can do the other side too)

As you can see that is the hyperbolic function

Sell side = P[i-1]*(1+theta)*(1-alpha2)
where,
P[i-1] is last months portfolio value, Theta is the current actual monthly rise in Index, Alpha2 is the STP threshold parameter
Trigger check Theta > =Alpha2 (again positive treatment)



So ENDING STATUS
BTD
P[i] = P[i-1]*(1-theta) + Buy Side
Cash[i]= Cash[i-1] - Buy Side

STP
P[i]= P[i-1]*(1+theta) - Sell Side
Cash[i]= Cash[i-1] + Sell Side

You add the T bill return to Cash in the end ie Cash[i] = Cash[i-1]* (1 + T-bill/12) for the first term

Hope this will aid in a smooth setup!

WOW - Just WOW! My cognitive faculties have clearly gone for a toss!

Or in this case I choose to BLAME it on this guy's clumsiness in explaining the strategy :)

Third time lucky perhaps - actually the 2nd attempt was basically correct.

Here's the updated formula for the Buy and Sell sides

Buy Side = P[i-1]* ( Theta - Alpha1 + Theta*Alpha1)

Sell Side =P[i-1] * ( Theta - Alpha2 - Theta*Alpha2)

And as I thought thru the guys' examples - and in the scenario where theta = alpha ie the Drop in index is equal to the chosen threshold
you will see that the System basically leaves you to do almost nothing - ie for all practical purposes it tries to maintain a parity
of invested $ to 50% of Portfolio * ( 1- Alpha) ie drop threshold.

So in essence its a 50:50 ish strategy based on initial $ with 50% sitting in cash all the time!!

This is CRAZY - so Starts matter A LOT - ie it needs a few bears at the beginning to even hold a chance!

Honestly - I wouldn't even waste time on this if I am right this go around( I am SINCERELY HOPING I am)

Best

There's a scene in a Danny Divito movie where somebody make a snide smarmy insult to Danny's character. Dannny's comeback was putting on a self-deprecating little grin, waved his hand above his head, and said "Whoosh" that went right over my head.

This reminds me of that.

Theta? Alpha? Corpus? I haven't read the book and I have no idea what those mean.

I was looking for the set of mechanical rules of when to buy/sell and how to decide how much to buy/sell. Not the formulas--I can figure those out myself.
Something along the lines of: "If the stock drops X%, compute Y as {formula} and buy $Y worth of stock..."

Here's an example I found at random on the internet.
1) At the start of every week, check the 30-week change of ETF-A and ETF-B.
2) If neither of the ETFs are returning more than 3% in 6 months, do nothing.
3) If one or both ETFs are returning more than 3%, invest your entire position in that ETF.



here's what I gleaned from that guy's descriptions

Ugh. So the guy didn't actually lay out the rules for his strategy? Just made some ambiguous generalities with fancy names? Ugh.

Mark, it seems like you have the book. Does he list the concrete rules, or it is just vague handwaving?

I'm not Mark, but I found my long-forgotten copy of the book. There are very concrete rules, but I'd rather not provide the specifics so as not to violate the copyright. But basically, one would compare the value of a stock holding to its prior month's prior month's value and then make buy/sell decisions based on the amount of increase or decrease. There is also an upward ratchet to add each time a purchase is executed so that theoretically the portfolio continues to keep more and more of the profit as it continues to grow.

Cathy

Sorry, not "prior month's prior month's" - just "prior month's"

Ah hah! A quick google search found a spreadsheet for calculating the buy/sell amounts using AIM:

https://authormichaelhicks.com/automatic-investmen...

You have the following columns. stock price, stock value, safe, cash, shares(bot, sold), shares owned, portfolio control, buy(sell) advise, market order, interest, portfolio value.

Now the formulas.

Stock value = current price * number of shares from line above
Safe = .1 * stock value
Cash = last rows cash ' last rows market order + last rows interest
Buy/sell advise = last months portfolio control ' this month stock value
Market order = buy sell advise - safe value
Interest is given
Portfolio control = last months portfolio control + round(.5 * this months market order,0)
Shares bought or sold = round(market order/stock price, 0)
Shares owned = last month shares owned + shares bought or sold
Portfolio value = cash + stock value

Now an example.

Assume this month the stock price is 10,the stock value = 5,000, cash = 5,000, shares bought = 5,000, portfolio value = 10,000, and the interest is 22.00
Next month the stock is 8.
Stock value = 4,000 = stock price * number of shares
Safe = 400, = .1 * Stock value
Cash = 5,022. Cash + interest
Buy sell advise = 1,000 last month portfolio control ' this months stock value
Market order = 600. Buy sell advise ' safe value
Shares bought or sold = 75. Market order divided by price
Portfolio control = 5,300 = last month portfolio control + .5* this month market order
Interest = 19 ' given
Portfolio value = cash + stock value = 9,022.

Is there a place where I can upload a spreadsheet. I had to play with this a while before it became familiar to me. Cathy, can you fix anything I did wrong?

:)

I had a chuckle too .....

QUOTE :This reminds me of that.

Theta? Alpha? Corpus? I haven't read the book and I have no idea what those mean.

:ENDQUOTE

I didnt either - I interpreted them from the link you provided- I dont think you bothered to read it thoroughly.


I glanced at the spreadsheet provided by Cathy ....

Theta = Limit column ( Market price movement %)
Alpha = Safe fraction : Here hard-coded to 0.1 or 10% - ideally you would like this to be a parameter - hence greek notation

Corpus = Your capital ie money you have. Over here is $2000 - Columns E and G.

There's ONE BIG DIFFERENCE between the link you gave and Cathy's linked spreadsheet - and that's how the incremental investments work

Col L : It checks to ensure that the amount of suggested incremental investment has to Exceed 5% of the current value of cash held - since its ABS so its both ways - ie Buy and Sell - ie those have to be in excess of 5% threshold for a Buy/Sell to be triggered.

That's an interesting element.

Anyway - I do hope spreadsheet works - I have this experience in the past people who are super comfortable with Spreadsheets - but translating the same into a mathematical formulation makes it go over their head. My only issue with that is - Excel is notoriously fragile in terms of formulaic error propagation and change.

All the best!

Market order = 600. Buy sell advise ' safe value<i/>

Should be Market order = 600. Buy sell advise - safe value

This could help also.



PC = stock price
PC increases by 1/2 purchases



SAFE = 10% of stock value SV = stock value
Min order size = 5%
Start with 50% cash and 50% stock

If SV > PC
( Potential sale )

(SV - PC) - SAFE = x
If x > .5 SV then sell x

If PC > SV
( POTENTIAL BUY )

(PC - SV) - SAFE= X
if X > .5 SV then buy X
(also increase PC by 1/2 X )

Write down the monthly prices for a whole market cycle ( spy, TSLA, ) maybe something that goes down then up and something that goes up and down.

You will have a lot of months with no trades.

AIM does better than underlying on the way down and not quite as good on the way up. It takes at least one market cycle.

Mark.... That's the strategy in a nutshell

"AIM does better than underlying on the way down and not quite as good on the way up. It takes at least one market cycle. "

Because other than the added check of 5% min order ( which makes the trades slowly increase from your chosen threshold - ie as the cash size increases so does the order size)

If you have an ever increasing stock just above your 5% monthly threshold - you will see the return is 1/2 of B&H ( That guys spreadsheet Q column is incorrect - because the initial stock purchase has to come from somewhere - so the total capital is $2000) roughly.

But then if you make the stock go down precipitously its not 1/2 any more but for about a 90% decimation in the stock - you still have about $400 ie 20% of your initial capital left with ALL CASH exhausted - this is the part which is different - since its doesnt do the Geometric as I thought initially - its a simple arithmetic 5% ish buy/sell order

NET MSG:
The strategy is EXTREMELY start dependent - you start at Jan 2000 as opposed to Jan 1990 and you will see distinctly different results.

Best

Thank you. You seem to understand it very well. You seem good at Math. Are you in the stem fields? So my questions, since you understand it. Will it do better than the s and p? Will it do worse than the s and p, by a small amount, but have reduced volatility? Should I give up on it?

Thanks for your help in getting me to understand it.

One other thing. Would changing the strategy to see 3%, or picking the right type of asset make the strategy work better, or is it just a dud?

Thank you again.

Mark .... Its a nuanced question ( ie whether it'll beat S&P or not) -- q is in what context and objective.

For B&H - the answer is a resounding NO!
Its a defensive 50:50 Balanced fund with 50% cash allocation during bullish times and a sequential BTD strategy during a bear.

Markets spend 67% ie 2/3rd 1/3rd in Bullish ie uptrend and the other 1/3rd are pullbacks, Bears are RARE!

I think what you need to ask yourself is that would you EVER do a B&H - ie take your entire portfolio/investable corpus and put it in ONE SHOT into the market? If not - knowing nothing would you say do a DCA type approach. Or is it that its TRUE DCA that you are interested in ie you have steady stream of investable funds which obviously comes to you at known intervals - but you dont have access to future.

I think its in the DCA concept this sort of a strategy has some shot.

Please refer to my earlier responses and suggestions and my own test on a Family 529 DVA vs DCA strategy I mentioned. I will say - I didnt initially get the 50:50 constant allocation of this at that time - I only got it when I wrote the math down!

This time I will not go into math - I am also a very visual person - so lets visualize a graph/chart.

NOTE: You have to do final DUE DILIGENCE on a Backtest - because this is some heuristic thing

So in essence if you are Dollar Cost Averaging - and you would like to have a better entry price - then you try to do this BTD thresholding - ie you wait for an opportunity for the market to correct and you pull trigger at your threshold.

The 2 sides of the coin or the issues are
(1) How far can the market run up before it even gives you an entry? As I mentioned based on my tests - if your entry threshold was IIRC 7.6%+ for almost the entire decade of 1950s this strategy sucked - because the market just wouldn't drop enough and it kept on rising!
(2) How do you know that you are not about to get sucker punched by a deep bear staring at your face , post your entry?

Difficult conundrums both. Hence I used the time-tested wisdom gained from this board to use a BCC variant as a switcher.
(a) So the threshold's tested were <10% while BCC bullish ( my own tweaks as suited for this strategy - not BCC AT LARGE) - so you are basically entering with the prior that its a Correction not a Bear
(b) If the BCC went bearish you exited and waited for it return to bullish
(c) Since you accumulate funds monthly - you will have a cash buildup and stored cash to deploy
(d) You deployed ALL AVAILABLE CASH on entry signals

So in essence the only additional LAYER I see from AIM is its scale in/out rules - whether they add value or not I really cant say without data/analysis.
Because the criticism and FLAW in the strategy is its Defensive posture to bear avoidance - which I think primarily motivates the rules - ie it wants to survive a bear thru the scale in and maintaining the 50% cash side - so the blow is halved.

This is in essence a Blind Man's Bear Catcher - all BCC tests if you are here on this board show that although they marginally under-perform B&H - they cut MDD by half.

So the ONLY Q you have to ask yourself - is - Do I want to be doing Catch the Knives and scale in while BCCs are bearish? Visually if you consider the Bear as a V .... its simply your average of entry points ie basis to the point in the upward V when BCC becomes bullish. If your basis is lower - you WILL HAVE BEAT BCC!

But that's why you need the backtest. Remember on the bullish side BCC is B&H - so anything else you try to do - you will be lowering returns - Yes you can have lower VOL - but you will give up CAGR

Thank you Anchak.

It would just be one more task to keep track of, so I am glad it does not work.

Over the decades now, I have seen so many strategies that seem to work and then when you try them they stop working, or they never worked. The latest is Saul's board. It worked so incredibly well and now is getting hammered.

I heard an interview with Aswath Damoderan and he talked about someone on his death bed, who used fancy charts all his life, and someone comes in and says 'You know, if you had just bought and held spy, you would have done 1/2% better per annum.' The guy looked at him and said, 'True, but I had much more fun with my charts.'

I am starting to believe that is what investing is really about. We have fun coming up with new techniques, learn the different companies, but don't do much better than just owning some ETFs.

And more to the point, if we have fun, it does not matter.

LOL!

To quote 2 famous investors - one World Renowned and one legend from here

(1) Buffet : Just own the Vanguard 500 -- leave the rest to others.
(2) Jim ( Mungo) : Point of investing is not to have fun - but make money!

(3) Buffet : Rule # 1 - Never lose money.
Rule # 2 - Always follow rule #1

Jim believes in Mr Buffet - and he actually does BTD thru his own valuation models on BRK.


No - dont try to have fun - I come from a culture where we believe in destiny - yeah if its in yours - you can have a lot of fun and make great investments like Mr Buffet.
The markets are typically set up to not to have a fun place - but more make fun of you - unless you have nerves of steel.

Because - most research points to investing success = Contrarian strategies. In some sense Mr Buffet made his name thru this and great management!
While Momentum works too ( Asness's work) - infact most strategies you see here on this board are of this variety. Saul's was an EXTREME example of the same - it was predicated on a strong economy - and relied one and ONE ONLY metric - Hyper Sales Growth ( or was it revenue??)

What they missed is that how Wall Street was taking that and translating it into Valuation. ( predicated on DCF - with the discount rate being the current 10 yr - and assumed to be static - for all practical reasons. I never even heard anyone using the forward curve!)

Both hyper sales ( GDP/Economic Outlook) and future valuation are dependent on the Rate environment - especially in my view - when the genie awakens - suddenly people start to pay attention to stuff like forward curve etc and precipitate the problem. Now that the forward is inverted - the recession probabilities makes everyone run for more cover

Personally, I am very very conservative - but I mostly try to work within the BCC parameters and knowledge imparted by folks like Jim, Zee et al.

Have fun here -- and stay focused on investing.

ALL THE BEST!

I probably did not make my point well. Jim and Zee are statistical outliers. I don't know Z's work that well, but Jim has so much knowledge that he really knocks the ball out of the park. I actually do slightly better than a 60/40 portfolio. Mainly because I learned about preferred stocks on this board, and it beats regular bonds. I also subscribe to a few newsletters that beat the s and p. But I don't do much better than a 60/40.

If I did not enjoy the process of investing, I would be better off with a 60/40 and playing tennis. Since I enjoy investing it is worth spending a lot of time to do slightly better than a 60/40.

As for Saul, I agree that when the cost of capital was a lot lower, growth stocks did a lot better. Also, to quote Ray, there is a time for everything, for 5 years it was a time for Saul's strategy to work. I hope that time returns.

I appreciate you figuring out that AIM does not work that well. I am not sure I could have figured it out myself. You saved me time, and possibly the opportunity cost of using it, when something else could work better.

One other point. AIM was written in the 1970s. I think in that particular market, where the stock market went up and down, but ended where it started, the strategy might have worked very well.

Doesn't work. Either of them. For the S&P500 (SPY) starting Jan 1950.

I downloaded that spreadsheet and extended it and plugged in the SPY values from Jan'1950 to June'2017. I normalized the "stock price" for a starting value of 10 (SPY was 17.05).

Mark's definition is "Portfolio control = last month's PC + 50% of prev mo trade amount"
so PC will go up when you buy and down when you sell.

That spreadsheet, PC only goes up. PC does not change on a sell.

On the face of it, it seems like Mark's way is more logical. The Control varies up and down as stock is bought or sold.

Mark's way, you never have a buy signal.
SELL 20
BUY 0
Hold 789

6/1/2017 values
Stock: $0
Cash: $3,149


Spreadsheet way is more active.
SELL 64
BUY 5
Hold 740

6/1/2017 values
Stock: $2,843
Cash: $7,237


B&H for initial $2000 of SPY: $284,271
Bigtime fail!!!!!

------------------------------------
"Buy/sell advise = last months portfolio control - this month stock value
Market order = buy sell advise - safe value"
This cannot be right.
If the advise is 0, then the order will be to sell $(safe value) amount.

"Is there a place where I can upload a spreadsheet."
Upload to dropbox. Or upload to a google sheets.
Either way, share the link.


-------------------------
Critique:
What he calls "SAFE" is what I'd call "threshold to take action" or "guiderail". It is a percentage of the current STOCK value. He uses 10%. That seems to be a very large percentage.
Then it computes the excess (above that threshold) and calls for a buy/sell of the amount of excess but ONLY if the order is for more than 5% of the current cash. That seems...odd. It works to moderate the change of cash.

All in all, it seems to me like he started with some particular stock and adjusted the threshold values until it gave him a result that he liked. As we used to say, Torture the numbers until they confess.

Ray, he is right, and I am wrong. Portfolio control only goes up. Also, for orders under 100.00 no action is taken.

Ray -

"Critique:
What he calls "SAFE" is what I'd call "threshold to take action" or "guiderail". It is a percentage of the current STOCK value. He uses 10%. That seems to be a very large percentage."

I called it buffer - same thing. This is what I have as alpha. Ideally a parameter you would optimize on 1950-2000 and then validate 2000+.

Then it computes the excess (above that threshold) and calls for a buy/sell of the amount of excess but ONLY if the order is for more than 5% of the current cash. That seems...odd. It works to moderate the change of cash.

AND THIS - is where when you write it down formulaically - and on a series execution - or even looking at the column in the spreadsheet you will see it just tries to maintain the 50/50 parity while the stocks going up - and then starts to allocate $ from cash on the Excess DROP on the downside. Since its a fixed 5% - your executions will dwindle in size too in line with the drops - ie you buy LESS and LESS.

And hence - its conceptually flawed - you dont even need to test it against B&H

Best

Hopefully, this will get you to the spreadsheet.

https://docs.google.com/spreadsheets/d/1x4YfG_d8qp...

We have fun coming up with new techniques, learn the different companies, but don't do much better than just owning some ETFs.

Bingo!

And hence - its conceptually flawed - you don't even need to test it against B&H

Heh. Well, I did test it against B&H, and wow! was it ever so much worse.

Reminds me of a couple of things I grabbed and put in my quotes file.

'Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.' ' Peter Lynch

"More Money Has Been Lost Avoiding Risk Than at the Point of a Gun"

"Until you realize taking a beating is a normal part of long-term investing, you'll hurt the overall performance of your portfolio."

Hopefully, this will get you to the spreadsheet. https://docs.google.com/spreadsheets/d/1x4YfG_d8qp...

You need to set permissions to "allow access to anyone".

You need to set permissions to "allow access to anyone".</iI>

I did what you said, and now the document is gone. I can redo it, if people are interested. It is just the correct way to make the calculations, taken from the book.

We assumed the cash would earn zero, while not invested. What if we assumed it would earn 6% in as closed end bond fund?

Here is another try at sharing the speadsheet.

https://docs.google.com/spreadsheets/d/1eDabJkyQ74...

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