Investment grade corporate bonds – credit instruments that have a rating of BBB- or above – have hit a 2015 high. Though the stock brokers were initially forced to find a new location for their meetings when they were banned from the Royal Exchange, there were also benefits of not going through the official Royal Exchange channels. The Royal Exchange was the first stock exchange in England but many brokers continued to frequent the coffee shops instead of the Exchange even after they were allowed to return. It was a popular move and the building became unofficially known as ‘The Stock Exchange’. To answer this question we will use historic stock prices and run the AIM algorithm through its paces.
Initially brokers only had to pay an entrance fee in order to take part but after several cases of fraud, the Stock Exchange introduced annual membership fees in 1801. Since then the London Stock Exchange has been an important centre for all things related to stocks, shares and investment. Though the London Stock Exchange was popular with stock-brokers and those with large amounts of funds at their disposal, it was not as easy for smaller investors to take part. So we can test AIM through a couple buying phases, at least one selling phase, and get a read on the current market.
Other early investment trusts are still running today, such as the Witan Investment Trust, which was founded in 1909 to manage the funds of Lord Farringdon but has since become one of the largest trusts on the Stock Exchange. The London Stock Exchange has come a long way since the 17th century coffee houses and is highly important to the English financial system. When markets are low, it can seem like there is no bottom, the market will never bounce back, which makes it easy to follow the herd and sell low. Robert Lichello named his market timing system Automatic Investment Management or AIM. After the market bottomed in 2002, we experience a 5-year period of rising prices.
In the late 1970’s Robert Lichello published a book titled How to Make $1,000,000 in the Stock Market – Automatically ” which presents a stock market timing system that claims to do exactly that. One of the interesting features of AIM is each time that you buy more shares your portfolio control increases by half the purchase value. This is a built in risk regulator that will stop you from exhausting your cash reserves when the market is going down or building too much of a cash reserve when the market is going higher.
We will use historical prices of one of the most active exchange traded funds (ETF), The S & P Depository Receipts, stock symbol SPY. From January 2000 to December 2014 the SPY price history has ranged from $68.11 to $208.72. During this period there has been two downturns in the stock market, one 5-year period of increasing prices and of course the current price increases since March of 2009. Now, let’s look at the results of the back-testing which is summarized on the time series graph shown below. From the market peak in October 2007 there is nearly a straight-line tumble until February 2009.