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Subject:  Re: Constant dollar position sizing Date:  7/8/2020  11:26 AM
Author:  mungofitch Number:  278338 of 279149

What I am looking for is an idea of selling and buying at intervals based on movement of a stock or my portfolio.

That's what the scheme I mentioned does.
It trims on every rise in the market, and buys on every dip.
But rather than determining the size of the trim based on nothing but the size/direction of the
market move as AIM might, it bases it on the change in the estimated trend earnings yield at the new price.
The earnings yield gives you an absolute, rather than relative, target for stock allocation.
You could just as easily use an estimate of annualized stock return in the next five years, which would work better for high growth firms that might not yet be profitable.

Because this approach has a tie to some metric of value, it works better over the long run.
AIM has no tie to value. It just wanders around, reacting to short term movements, not knowing
whether an "up" move is from cheap to less cheap, or from overvalued to more overvalued.
If you started an AIM process when the market was high, you'd tend towards a 100% stock allocation quite quickly.
If you start when the market is low, your portfolio will trend towards 100% cash quite quickly.

A valuation based system (like trend earnings yield) on the other hand, will give you the same
allocation for August 2020 whether you start the trading program in in July 2020 or July 2000.
If things look expensive, the recommended allocation will be low, no matter how much stock you had the month before.

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