Doug has a MS in Systems and Industrial Engineering with a dual major in Quality and Reliability Engineering . He lives in Gilbert, Arizona.
A System to Reduce the Emotion of Investing
Many have said the most important purpose for investing is to make money. In order to make money, we face two key decisions: when to buy and when to sell. Simply put, we must buy when prices are low and sell when prices are higher than the buy price.
The difficulty is in the implementation. Our emotions work against us; when markets are rising, there’s a jubilation that makes it very easy to join in and buy when prices are high and moving higher. When markets are low, it can seem like there is no bottom and the market will never bounce back, which makes it easy to follow the herd and sell low.
Ideally, what we need is a system that will reduce the emotion of investing by automatically telling you when to buy, sell, or do nothing. In the late 1970s, 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. In this article, we will briefly explain this system and then back-test it to see if there is any credence to these claims.
- If you are already familiar with the basic AIM system but would like to see a more detailed analysis, go to this article: Sensitivity Analysis.
- If you want to see how to use the AIM system in a multi-ETF portfolio, go to this article: Multi-ETF Analysis.
What Is AIM?
Robert Lichello named his market timing system Automatic Investment Management or AIM. AIM is an algorithm that provides a logical system for managing your investments. It can be used with a stock or mutual fund portfolio. This system will instruct you when and how much to buy or sell.
To calculate AIM’s buy and sell quantities, you need to know two things: how much money you have invested in the portfolio and the current value of your portfolio. To illustrate, let’s run through a couple of examples.
Example of a Buy Order
- Portfolio Control (Amount of initial investment) = 1,000 shares @ $10 per share = $10,000
- One month later, the stock price falls to $8, Portfolio Value = $8,000
- Add 10% to the current portfolio value = $8,800.
- Subtract 8,800 from 10,000
- Which equals = $1,200
Note: A positive value indicates a buy signal. However, if this value were negative, then AIM is telling us to hold.
Because the value of your investment has decreased, AIM has signaled you to buy 150 shares, the equivalent of $1,200.
One of the interesting features of AIM is each time that you buy more shares, your portfolio control increases by half the purchase value. In this case, the portfolio control would increase to $10,600. 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.
Example of a Sell Order
- Portfolio Control (Amount of initial investment) = 1,000 shares @ $10 per share = $10,000
- One month later the stock price rises to $13, Portfolio Value = $13,000
- Subtract 10% from the current portfolio value = $11,700
- Subtract $11,700 from $10,000
- Which equals = -$1,700
Note: The negative value indicates a sell signal. However, if this value were positive, then AIM is telling us to hold.
Because the value of your investment has increased, AIM is telling you to sell 130 shares, the equivalent of $1,700.
In both cases, AIM has you making the correct decision—buying when your portfolio value goes lower and selling when it goes higher. If AIM is strictly followed, it can be used to take much of the emotion out of investing.
- A.I.M. Users Message Board - InvestorsHub
- The "Stock Trading Riches" Investment System Message Board - InvestorsHub
AIM in the Real World
So, does AIM work in the real world? To answer this question we will use historic stock prices and run the AIM algorithm through its paces. We will use historical prices of one of the most active exchange-traded funds (ETF), The S & P Depository Receipts, stock symbol SPY. SPY is an ETF that tracks the Standard & Poors index of 500 stocks.
From January 2000 to July 2016, the SPY price history has ranged from $68.11 to $217.12. During this period, there have been two downturns in the stock market: one five-year period of increasing prices and, of course, the current price increases since March of 2009. So we can test AIM through a couple of buying phases, at least one selling phase, and get a read on the current market.
Now, let’s look at the results of the back-testing, summarized on the time series graph shown below. All buy and sell transactions are noted with yellow text boxes that show the month/year, quantity bought or sold and closing price at the end of that month. Additionally, buy transactions are denoted with red markers, and sell transactions are denoted with green markers.
Results of the Back-Testing
The first thing we notice is that the initial purchase of 68 shares on 1/3/2000 is very near where the market peaked in August of 2000. Then as the market fell for the next two years AIM had us accumulating a total of 79 shares over seven distinct buy signals in February, March, August and September of 2001, and June, July and September of 2002. During this buying phase, we used up a most of our cash reserves leaving us with $2,919 in cash "insurance" should the market continue to decline. Additionally, our number of shares has increased by 116% from 68 shares to 147 shares, more than doubling our "potential" increase in equity value when the market trend turns up. Assuming FIFO accounting our average price per share has been reduced from $143.80 to $121.21.
After the market bottomed in 2002, we experience a 5-year period of rising prices. During this period, AIM would have us selling a total of 42 shares at five distinct selling opportunities in January and December 2004, February and October 2006 and April 2007. At the end of this selling phase AIM has us building up cash reserves to $9,989 and we are holding 105 shares. Average price per share is $78.85.
From the market peak in October 2007 there is nearly a straight-line tumble until February 2009. During that freefall, AIM has us accumulating a total of 117 shares over six distinct buy signals from September 2008 to February 2009. At the end of this accumulation phase AIM has almost depleted the cash reserves to $809 and we are now holding 222 shares at an average price per share of $97.86.
Finally, the market picked up from March of 2009 through July 2016. During that period AIM issues 12 sell signals for a total of 124 shares. At the end of this selling phase AIM has us building up our cash reserves to $21,149 and holding 98 shares at an average price per share of $82.76.
Overall Portfolio Performance
In spite of the initial purchase being close to a market top, the overall portfolio performance is not bad. As of 7/31/16, the hypothetical portfolio consists of 98 shares of stock and $21,149 in cash reserves for a total of $44,164 or a gain of 120.8%. Employing a buy-and-hold strategy would have resulted in a total of $31,839 or a gain of 59.2%.
AIM appears to do a good job of inventory management and control as exhibited by our cash reserves increasing by 111.5%, our share ownership increasing by 44.1%, and the average price per share of $82.76, which is a reduction of 44.2%. However, one risk came out during the second accumulation phase, we very nearly ran out of cash in April 2009. We had only $809 (4% of the total portfolio value) to buy more shares, nearly exhausting our cash reserves.
During the two market downturns, AIM caught both bottoms with buy signals; on the up side, AIM missed selling at the 10/2007 peak.
Overall the AIM system appears to do a good job of identifying key buy/sell points. If you are disciplined enough to act only when AIM tells you to buy/sell, much of the emotion of investing can be eliminated.
If you are interested in obtaining the source data for this analysis in spreadsheet form, send an email to firstname.lastname@example.org with the words “AIM Back-Test” in the subject line.
Assumptions for Back-Testing AIM
It is always necessary to make some basic assumptions when doing an empirical analysis. Here is the list for this analysis:
- Initial amount to invest in the stock is $10,000
- Cash reserve of $10,000 for future purchases
- AIM decisions are based on the closing price of the stock on the last trading day of each month
- Buy or sell price is the open price of the stock on the first trading day of each month
- Buy or sell order not executed unless the order is +/- 5% of the equity value
- Stock trading commission is $10.95 per trade
- Rate of return on Cash reserve is 2% APR
- Dividends distributed into cash account, not reinvested
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Eric on August 29, 2020:
I have had amazing success with leveraged etfs. Wondering if adding to portfolio control on sells would be beneficial. I was thinking 10% of the sale. Trying to keep cash no more than 50% PC and needed to do a vealie which got me thinking that adding a percentage of a sell would be the same. Your thoughts?
Sunil237 on February 03, 2019:
Thank you for the great article. I am new to AIM and playing around with UPRO with AIM 50/50. thanks for everyones insightful comments
Mark C Thomsen on April 25, 2018:
I read AIM many years ago and have used it but not recently. I am interested in comments from Jeff about using LEAPS with AIM. I also would like to hear what ETF's have been used successfully.
Leveraged Investo on April 14, 2018:
Forgot back tested results.
Leveraged Investo on April 14, 2018:
Here is a $10,000 back tested portfolio of TQQQ/TMF for the last 7 years. Quarterly rebalancing and adding $3000 quarterly. You are buying cheaper shares on the way down of a volitable ETF. TMF protects the leveraged ETF from large drawdowns. The US Mkt Correlation number is the key and you can adjust this by the amount TMF in portfolio. It compares favorably to the 2 bear markets of 2001-02, and 2007-08. Some investors go to higher bond % when below 200 day moving average. I prefer not to sell, except if necessary for re-balancing for tax purposes. I can borrow at a very low margin rate at Interactive brokers if money is needed. You get about 2.3 leverage on the upside with protection on the downside. Works well on UPRO 3 x SPY also. Perhaps incorporating your system might give better returns? Any comments would be welcome
ThinkSmartNotHard on March 31, 2018:
I posted this on another board, but I think it's worth repeating. I've looked at the various equity/cash thresholds, but they all don't address the fact that over time, the portfolio control will grow to have a positive sell bias because it's underweighted from ignoring the expected growth in the market.
It seems an obvious choice might be to make a subtle tweak in the algorithm itself by adjusting the Portfolio control. There are a couple of thoughts, but the simplest might be to adjust the portfolio control by increasing the value monthly [or based on whichever time frame is selected] to factor in an annualized average market increase. Let's say that average is 9.8% per year.
Every time you run the algorithm, you would increase the portfolio control by adding the adjusted annualized increase of the initial equity investment. So for example, if you put in 5K the first month. The second month, the average annualized increase should be roughly 5040. So when comparing the stock value, you would compare it to the updated portfolio control. The following month, the portfolio control would be updated to 5081 and so on. If the stock is a dividend yielding stock, you could reduce that percentage by subtracting the annual dividend yield.
Of course, you could adjust the annualized percentage to fit the average return for that sector in the market. There also could be a few more complicated options that factor in original, historical, medium, and short term averages. Another option is peg the Portfolio control to another algorithm based on PE ratio for that stock. Again, the PE ratio could be a historical average for the stock, sector, or overall market and could be modified to factor in long, medium, & short term trends.
You could consider a weight of say 1/3 historical, 1/3 3-year, & 1/3 1-year performance for the annual rate of return and/or the PE ratio used to adjust the portfolio control. This way, you could benefit from trends in an up market and reduce risk in a down market while keeping the portfolio control at a reasonable value that doesn't lose it's significance over time.
Jeff Weber on February 22, 2018:
I have been using AIM with long-term options (LEAPS) on Dow Jones stocks like CAT, MRK, AXP, and it works great. A 10 Dow Jones portfolio of LEAPS is up 344% in the last 49 months or $60,000 ($30,000 cash, $30,000 LEAPS) is up to $266,000. AIM works! I even wrote my own AIM book Here Are the Customer's Yachts available on Amazon. I ever added a Bear Strategy for AIM for both stocks and LEAPS. And I write a monthly AIM newsletter that is free for people who buy my book.
doug k. on January 23, 2018:
Another of my findings from using AIM for over 20 years.
It does depend on one's stock selection. AIM will definitely work differently for MCD than for SBUX. I think that it's important to invest in an etf index to avoid the black swans that can occur with individual stocks. However with indexes come mediocrity. Leveraged indexes have been around for five years or so now. Time is an investors greatest ally. For those of us who don't have long investment horizons anymore volatility can be a substitute. Leveraged indexes offer safety from black swans and provide enough volatility to make up for the lack of long term time horizons. They also offer more AIM opportunities for action. Of course they can drop precipitously, but that is what the AIM investor wants. Good buying opportunities with the safety that an index offers over individual stocks.
I think that UPRO, CURE, TQQQ, and SOXL are ideal A.I.M. investment vehicles. Large and varied for safety yet leveraged for action.
Now getting to the program itself. After years of use I've found the biggest problem, if one can call it that, is sitting on a huge nonproductive cash portfolio.
My solution (and I'm open to constructive comments) has been to limit my cash portfolio to 1/3 of the highest investment control, and to limit transactions to 1/3 of the highest achieved cash portfolio. That gives one three buys on the way down, widely separated, till cash is exhausted.
I also re start the A.I.M. program with 75% stock and 25% cash after each sale. (This means also increasing investment control to the market value of the stock after each sale). This keeps my portfolio growing rather than "locked" around an initial investment value.
For the excess cash that I remove form the A.I.M. program I Dollar Cost Average into an income producing vehicle such as FFC, YYY, or my favorite, though thinly traded, DVYL.
I can truthfully say that A.I.M. has worked very very well for me over the almost thirty years that I have been using it, even without my little tweeks to the system.
In the early days I had to start by picking individual stocks, but now I feel that leveraged indexes are the best way to go.
Best of luck to you all.
R. SHAW on May 10, 2017:
IT SHOULD BE MENTIONED THAT PROFESSOR LICHELLO SAID THE SYSTEM WOULD WORK IN ANY SECTOR OF THE MARKET, BULL OR BEAR. INVESTING IN THE ELECTRONIC OIL FUTURES, I DISCOVERED A BETTER RETURN DURING A BEAR USING THIS LEDGER RECORDING TECHNIQUE.
Srini M on January 26, 2016:
I am newbie for AIM. Was looking for some back testing info before I dive into this strategy and came across your article. Very informative and exactly what I was looking for. Thanks much for sharing.
Diego on July 06, 2015:
Thank you very much for the spreadsheet
dburkeaz (author) from Gilbert, AZ on June 18, 2015:
Yes, the spreadsheet for the SPY back test is still available, send me an email to email@example.com with "AIM Back-Test" in the subject line and I will send it to you.
Tom Ago on June 18, 2015:
I'm new to AIM and noted this comment in an early (5 years' old) post: "Any viewers interested should be sure to get dburkeaz's spreadsheet..."
I'd like to know more about this spreadsheet if it is still available.
Thanks for any help here.
dburkeaz (author) from Gilbert, AZ on April 25, 2015:
Hi Doug K, thank you for sharing your experience and confirming that AIM works in the real world. I laughed at the "Too automatic..." opinion, that is what attracted me to AIM in the first place.
Thanks again and keep on AIMing!
Doug K. on April 25, 2015:
Great article. Thanks for keeping the discussion going re AIM. I've been using AIM with my own unique minor variations for twenty years or so. Have made a lot of $$. Have given home seminars for co-workers who mostly expressed the opinions that it wouldn't work, too automatic, didn't account for bankrupt stocks etc. So sad I retired early and they're still working.
I've found it best to use AIM with and index/ETF to avoid the risk of bankruptcy or negative earnings surprises that keep one from sleeping well at night.
In particular I'm doing great with bib, cure, and upro now. I have found that a minimum space between transactions of two months allows the stock to establish a "run" either way before acting upon it.
This system really does work!!!
Also I use Lichello"s synchrovest method to invest in bib and cure each time my dividends (from the dividend portion of my portfolio) have accumulated to $1,000 or greater. The results here have been totally amazing, even more powerful than AIM when I use a synchrovest ratio of 85/15.
Happy investing, Doug K.
Madhav on April 06, 2015:
indeed it does. thanks very much. in a tax regime where short term holdings ( shares sold within 1 year of acquisition) are subject to 20% taxation on the gains, I'm wondering whether this will beat the buy and hold pattern in a predominantly rising market. regds Madhav
dburkeaz (author) from Gilbert, AZ on April 06, 2015:
OK, I see where the confusion is. First you are correct, to limit the buy/sell of small orders I put in the rule that if the current buy/sell order is not +/- 5% of the equity value then the market order would not be executed. Now, in this specific example since the portfolio value + 10% is greater than PC you should hold until the next time you assess your portfolio value. Hope that clears up the confusion.
madhav on April 06, 2015:
Hi dburkeaz. thanks for the clarification. i had misunderstood and now clear. may i seek another clarification. which is do I apply the 10% to the equity value and make a trade only if the value to be bought/sold is more than 5% of the current equity value? i have read this in your article about the trade being made only if more than 5% of eq value.also i have the following example. share starts at 2000 and I have 50 shares. share price falls to 1975 per share. new equity value is 98750 and is lower than PC amount of 100000 indicationg buy. I then apply +10% to eq value taking this up to 108k. now this is more than PC value. do i sell? sorry forwhat may appear a dumb question.
dburkeaz (author) from Gilbert, AZ on April 04, 2015:
Hi Conrad I appreciate what you are doing with Vortex AIM, yes it is based on the AIM algorithm however I find it much more complicated and also introduces some subjective parameters to establish aggressive/conservative selling. The intent of my hubpages is to introduce the AIM by the book algorithm as an "automatic" system that does not require subjective calls or predictive abilities. Can I suggest that you write an introductory Vortex article which mirrors the same time-frame and ETF (the SPY) so readers can compare and contrast side by side?
dburkeaz (author) from Gilbert, AZ on April 02, 2015:
I'm not sure where your +5% break-out rule is coming from but it is not part of the AIM algorithm. If you are using the AIM algorithm then you would have sold some shares during the 17-week increase. So, in your example, PC=$28,500, current portfolio value =$34,000. Since current portfolio value is higher than PC you are in a sell situation. Now subtract 10% from your portfolio value to get $30,600 and subtract PC to get a sell order of $2,100.
Madhav on April 02, 2015:
Many thanks for this. i have one more query. assume a stock starts at 285 currency units per share and slowly makes it way up to 361 currency units over 17 weeks without any +5 % breaks on any weekly measurement date. it then drops to 340 units. On a drop I should be buying shares. The new equity value , assuming i started with 100 shares will be 34000 , compared to the PC value of 28500. the calculation will be new equity value +10% = 37400 compared to PC of 28500 indicating i need to sell?? shares. thanks for clarifying
dburkeaz (author) from Gilbert, AZ on March 30, 2015:
I think you are calculating your PC incorrectly, I have PC @ $13,812 after the Sept. 2002 purchase and the number of shares @ 145. That would provide a negative market order on Feb. 2004 which implies a sell signal. Check your calculations, remember the PC is increased by 1/2 the PURCHASE amount, sale of shares do not affect calculation of PC.
Madhav on March 30, 2015:
I have a typo in my first comment. It should read I cannot compute the 9 units sold on the first upswing.
Madhav on March 30, 2015:
Just entering the stock market from buy and hold pattern to active trading. seems like a sound strategy.
I could not compute the first buy on your backtesting of SPY. By adding 1/2 the value of purchases on the downward swing from 1/3/2000 to sept 2002 to the PC amount,then on the first upswng purchase I find the value of stock (147 units at 113.48)is less than the PC amount which by my calculation should have increased to about $16.4k. By subtracting the new equity value from the new PC amount I get a positive number which signifies a buy sign, unless i got something wrong. help please.
dburkeaz (author) from Gilbert, AZ on March 02, 2015:
Hi, I'm going to deny this comment because of the link, if you repost without the link I'll approve it.
dburkeaz (author) from Gilbert, AZ on February 02, 2015:
Hi Johne532, I'd like to see your blog first before I say yes, can you provide a link?
RealAssets1 on April 23, 2014:
Anyone here familiar with the CoolTrade Robotic Trading software and whether the AIM method could be added as a trading strategy to automatically trade stocks, ETFs, mutual funds, etc? The software has preloaded strategies and a "Strategy Wizard" allows you to load your own trading strategy. I would think that this strategy could be implemented with the robotic features of this software and be a winner. Anyone up to the challenge?
jeffee from San Antonio, TX on August 20, 2013:
This hub is kind enough to post a copy of my AIM book. I wanted to let everyone know they can now get a free copy of my revised eBook I Guarantee You Will Buy Low Sell High and Make Money on AIM by going to http://www.smashwords.com/books/view/115430 and then entering coupon code RK83X at the checkout. Then email me at firstname.lastname@example.org and I will send you a free copy of the full new AIM book I wrote that is 350 pages and comes with a sample of my newsletter and other free bonuses - learn how to use AIM with LEAPs (long-term options), ETFs and learn a bear strategy for AIM
Roc on August 19, 2013:
It is dollar-cost averaging I was comparing to. I think the period 1950-2013 contains multiple bear and bull markets, and this is a long-term real-life market that we would want to apply our strategies to. I don't think dividends are important for the conclusions/comparisons though, as one can simply add the rate to the annualized compound rate. Running out of cash wasn't harmful to the conclusion either, because the situation was simply reported but allowed, so none of the sell/buy decisions were altered. There is actually a little difference in how Microsoft Excel and NinjaScript (essentially C#) handle int() function: Excel treats int() like floor(), so int(-9.5) becomes -10, while int(-9.5) in C# is -9, which sometimes results in different decisions. I guess after conducting the tests, my previous thought was reinforced: if no stock-selection process based "somehow" (through either fundamental or technical analysis) on the real business growth prospects are included as part of a system, it cannot hope to outperform the market. If it did (and it was a robust system), it must also do so under extreme conditions: think of what will happen if everyone adopts the same strategy. I believe in dollar-cost averaging because it only claims to help achieve market return.
dburkeaz (author) from Gilbert, AZ on August 19, 2013:
Hi Roc, your conclusions do not surprise me.
I have also received feedback on the 10 share limit for a buy/sell trigger. What AIM practitioners have used in the past is to trigger a buy/sell only if AIM's signal is greater (or less) than 5% of the equity value of the portfolio.
On your second try, you really need to consider dividends, this alone can help to keep your cash reserve up and possibly avoid running out. In this back-test the dividends were not reinvested but saved in the Money Market account to fund future buying. I get my back-test data from Yahoo! finance which easily allows you to download historic price and dividend data to an excel spreadsheet.
Your final scenario sounds more like dollar cost averaging. In a constantly rising bull market dollar cost averaging could easily show better returns than AIM. The beauty of AIM is it's ability to capture volatility and convert it to profit, if there is little up & down price movement AIM will most certainly be one-sided (either on the buy or sell side). Mr. Lichello actually developed a modified dollar cost averaging methodology called TwinVest. Pick up a copy of his book and check it out or check out the investorhub bulletin board @ http://investorshub.advfn.com/AIM-Users-Bulletin-B...
I suggest you make a few minor changes to your initial conditions relative to dividends, and buy/sell trigger and see how the AIM results compare.
Thanks for your interest and feedback!
Roc on August 19, 2013:
A very helpful article you wrote! I did some similar tests and here are the results that I'd like to share with everybody. In my first try, I didn't implement the 10-share trade minimum, and as a result I ran out of cash twice during the same period (worst at about $-2630). It seems to me that an absolute rather than a relative value (10) here is somewhat arbitrary since if another index fund or ETF with lower/higher price per share were chosen, we certainly would like to increase/decrease this value accordingly, and besides, shouldn't SAFE supposed to be a regulator already? For my second try, I added the minimum-share requirement but didn't include the dividends (don't know how to get it from the data source), I still ran out of cash once (at a much smaller amount, about $-12), which in real-life may not be a big issue since I can always temporarily move some funds into the market and retrieve it the next time I sell. However, it does appear that AIM is not very robust and its behavior depends to some extent on the exact choice of relevant parameters and different market conditions. The last of my tries uses a different scenario. Instead of a lump-sum investment at day 1, I assumed that a constant stream of new funds (adjusted for inflation and interest) is added every 12 months. I compared the performance of AIM and simple periodic investment (every several weeks), and found out that AIM underperforms the simple periodic method by about 3.3% (annualized nominal compound rate) for 1950-2013. I've described this test (and another two) in more details at
dburkeaz (author) from Gilbert, AZ on July 24, 2013:
Thanks for your comments/questions, I'll try to answer them, hoping others that watch this hub will add to my responses.
1. That is the reason I did the analysis with SPY, these results can be used as a baseline for comparison to other ETFs. Higher beta ETFs should give better returns, lower beta ETFs should give lower returns. However (there's always a "however"), using more volatile ETFs will increase the risk of running out of cash.
2. That is correct for a 50:50 ratio. Tom Vealie developed an index which helps to determine how much cash to have on hand when starting an AIM portfolio, it is called the VWave. go to investorshub.advfn.com for more information and the most recent VWave calculation.
3. Yes approximate 35% max. drawdown is correct.
4. AIM should work with any ETF, even gold and silver ETFs.
5. I would think an ETF that is 80% from it's peak would reduce some of the downside risk so buying opportunities might be scarcer than selling ones. This is pure speculation on my part, I see it as more risky than jumping into one of the SPY sector ETFs with higher beta.
Hope others will jump in...
wje3 on July 18, 2013:
Thank you once again for the spreadsheet. It's been very helpful.
I have a few questions:
1. As I've researched AIM, I've noticed that many people talk about using stocks/ETFs with a "highish" Beta. Your backtest uses the SPY, so the Beta should be 1, and the results are pretty good. If you used a highish Beta asset, do you think the results would be even better?
2. This is a very dumb and basic question: when initiating a position and looking at the total cash outlay, it's going to be the cash for the stock +an equal amount of cash if you're using the 50:50 ratio. Is that correct?
3. Drawdown: Doing a quick glance at the spreadsheet, it looks like the max drawdown was around 35%. That was for the total position, cash+stock. Does that sound about right?
4. Do you think that AIM would work on commodity ETFs like GLD or SLV?
5. Also, how do you think AIM would work if you're buying an asset/sector that's down 80% or so from it's peak? Such as Greece(GREK) or the Junior Miners(GDXJ). At least they are not single stocks so "hopefully" won't go to zero. There's some historical evidence of very good 3 year returns when buying a sector/industry/country down 80% from it's peak.
Thanks for your work with this topic; I appreciate it.
dburkeaz (author) from Gilbert, AZ on June 17, 2013:
Hi Arosss11, there have been a few approaches to reducing the chance of exhausting your cash. One I remember was called "half way to the wall" or something like that. The idea is that when AIM issues a buy signal, the most cash you can use is half of what you have on hand. You could in theory still run your cash so low that you miss buying opportunities but would still be buying some if not all of what AIM is telling you to buy. Another is to split the safe so there is a separate safe for buys and sells. This will allow you to adjust for less frequent but larger buy signals. One thing I am playing around with is simply adjusting portfolio control by the % of cash in the portfolio. When cash is low you will adjust PC less, when you have lots of cash you would increase PC more than 50%. Give some of those ideas a run through your back-test and post your results.
dburkeaz (author) from Gilbert, AZ on June 17, 2013:
Hi elcoincollector, you are correct, with the market at these lofty levels I would not allocate more than 50% of my money into a new AIM account.
elcoincollector on June 17, 2013:
Hi dburkeaz, Didn't think about it that way but it makes perfect sense. In one of my back tests, the stock was in an almost constant uptrend for years and when I compared my 50:50 AIM to a 100% Buy and Hold, the B&H scenario gave a much higher profit. The test ran only about 5 years data. We are not trying to pick exact tops or bottoms, but I guess it would not be a great idea to start a new AIM program now, going very heavy on the stock side. Based on the huge run up that the market has had recently. One can only guess that at some point there will be another bear, or at least a substantial correction.
I'm still running tests but getting ready to pull the trigger and start the program very soon!
Hi Arosss11, interesting question you post. I would also be interested in the answer, hopefully dburkeaz can offer some insight, cheers!
Arosss11 on June 14, 2013:
I tried back testing AIM on an ETF that trades on the TSX.... HNU is the fund and I weekly closing prices starting the first week in January 2012 and found that the fund dropped dramatically to the point where I was out of cash within a couple of months and missed buying at the bottom. I found that increasing Portfolio Control by 50% of any new purchase seemed too high. What do you think?
dburkeaz (author) from Gilbert, AZ on June 14, 2013:
Hi elcoincollector, Mr. Lichello adjusted the equity:cash ratio to accommodate the raging bull market from 1982-2000 which in essence limited the amount of money in cash. Allocating at the 80:20 ratio is risky because when the market finally turns down and AIM issues a series of buy a signals you most likely will run out of cash and miss good buying opportunities. As far as other changes to AIM, people have tinkered with splitting the SAFE, one for buys and one for sells. Tom Veale has done the most extensive research, modifications, and analysis of Mr. Lichello's AIM system. Just do a Google/Bing search on Tom Veale you'll get lots of good stuff to read.
elcoincollector on June 14, 2013:
I have R. Lichello's book, 3rd edition. Reading in various places I found that in the 4th edition he changes the original proportion of stock:cash from 50:50 to 65:35 and later to 80:20. Is this correct? Also, are there any other changes to the formula?
On another aspect, what would you suggest as a method for keeping track of, and mainly making decisions about what proportions of each stock or fund to keep within the invested part of the program?
I am currently doing some backtesting with various stocks and ETFs on a spreadsheet, but still have not started the program with real money.
dburkeaz (author) from Gilbert, AZ on June 12, 2013:
Hi elcoincollector, portfolio control is only adjusted for buys not sells. Your selection of IJS seems like a reasonable one, I would not hesitate using this to start an AIM program. Good luck and remember to only move when AIM tells you to...
elcoincollector on June 12, 2013:
Hi dburkeaz, thank you for the reply/advice. If you don't mind I would like to ask some more...
Can you clarify the adjustments to Portfolio control?
It's supposed to be equal the the full amount of initial stock purchase, then add 1/2 of every additional purchase. Does it also adjust to the down side when one sells stock? Also by 1/2 of that amount?
Next, I am considering starting the AIM program using IJS (iShares S&P SmallCap 600 Value Index) for the following reasons:
1-To at least initially not choose an individual stock and by that, attempting to reduce risk of that one stock declining too dramatically and not recover.
2-It has a Beta of 1.26 (against Standard Index). Not extreme, but at least it should be more active than the index.
3.It has a dividend.
Does this sound like enough reason to make that choice? or should I be looking at other factors?
Again, thank you for sharing your experience.
dburkeaz (author) from Gilbert, AZ on June 11, 2013:
Hi elcoincollector, I don't have knowledge of specific studies that correlate beta to AIM performance. Your intuition is right on, AIM will issue more buy/sell signals for more volatile price action, ultimately giving you better returns. Be careful with highly volatile stocks/funds/ETFs as there is a point of diminishing/flat returns because you run the risk of running out of cash forcing you to add more cash from a different source or just flat out miss good buying opportunities. My advice to anyone just starting an AIM program is to get into a modestly volatile investment and be patient.
elcoincollector on June 11, 2013:
I'm happy to have found this site because I would like to start my own AIM program very soon.
I understand that AIM depends on volatility to generate opportunities to buy/sell. What range of Beta is considered appropriate for this system? (assuming one has not changed any of the parameters from Lichello's book).
Thanks for any help!
dburkeaz (author) from Gilbert, AZ on May 24, 2013:
The only application I've seen for options is with Long-Term Equity Anticipation Securities or LEAPS. Look back at the comments for one posted by jeffee about 13-months ago. I don't personally endorse what he is doing but only because I have not take the time to fully understand his integration of AIM into these investment vehicles.
Ganga on May 23, 2013:
Does a similar system exist for option market ?
dburkeaz (author) from Gilbert, AZ on July 26, 2012:
I know what you are saying, it's not of everyone but it does work.
monicamelendez from Salt Lake City on July 26, 2012:
Interesting experiment. I personally just can't fully buy into doing anything at all that's automatic!
jeffee on April 26, 2012:
D, I found most mutual funds don't have enough volatility up and down to use with AIM. You are right - ETFS are better.
Did you know there are ETFs that have LEAPs. I can send you a list and a free copy of my 350-page book and monthly AIM newsletter - just go to http://www.jjjinvesting.com I had one investor in American Express LEAP - he bought when AXP was near 52-week low (one of my cardinal rules for success). The LEAP started at $7.00, when to $4.50 (I told him buy more), AXP LEAP finally went to $21.00 when I told him sell remaining LEAP contracts. LEAPs on household names like Am Express, IBM, Coca-Cola are extremely safe -as safe as the stock & a lot cheaper so you can control more shares. I have friend buy 2 contracts on Goldman Sachs LEAP - so he controlled 200 shares instead of only buying 100 shares of stock - just using AIM once a month in the money LEAPs up 119% in less than 6 years - see at http://www.jjjinvesting.com/leaps1.html
dburkeaz (author) from Gilbert, AZ on April 26, 2012:
Yes, AIM will issue more buy/sell signals as volitility increases. I do not have any experience to share using AIM with LEAPS(Long-term Equity Anticipation Securities). However, I would caution that there is more to consider than volitility when investing in these option instruments. Just as a single stock can go to zero (Enron, WorlCom, etc.) so can the unerlying options.
I would suggest anyone just starting in AIM use a mutual fund or ETF which has less chance of going to zero.
jeffee from San Antonio, TX on April 25, 2012:
I think AIM gives best results when you use it on volitile investments like LEAPs - I've wriiten my own AIM investing book showing using LEAPs and have a regular bear AIM strategy and a separate AIM LEAP bear strategy.
dburkeaz (author) from Gilbert, AZ on March 28, 2012:
Thanks for the question, the annualized ROR for SPY for the periods 2/2002 to 2/2012 are:
6% using AIM
3% buy and hold
Leo on March 27, 2012:
What is AIM's annualized return on SPY? say last 10 years?
dburkeaz (author) from Gilbert, AZ on March 23, 2012:
In theory you could use AIM to control a Jr. resource company but since 95% of all Jr. resource companies go bankrupt I would not do this. You want a stock/mutual fund/ETF that will exhibit volotility but does not go to zero.
Wosabi on March 22, 2012:
I imagine AIM would work with a junior resource company. You'd just have to check the system more often. Any thoughts?
dburkeaz (author) from Gilbert, AZ on February 20, 2012:
Take a look at the investorshub message boards, there is a board dedicated to AIM, here is the link:
It is moderated by Tom Veale who had been writing about AIM for many, many years.
Matthew on February 20, 2012:
I have more to invest, $10,000 in fact, but I thought since I am so new that I should start out small. If i lost the $10,000 it wouldn't hurt me b ut it might discourge me from investing more money. I could start the account with $1000 with a $1000 more to buy when it falls on day one. If i lose all of my $2,000 I would put it right back in the next week, well after I figure out what I did wroong/ I like the idea of the ETF since I dont want to start to invest in any one company as of yet. I still have to buy the book but are there other resources you could direct me too. Thank you so much. I didn't know if anyone was going to reply to this thread.
dburkeaz (author) from Gilbert, AZ on February 20, 2012:
If you are going to use the AIM methodology then you should not put 100% into your equity investment, so if you start with $1000 then you really only have $500 to invest in and equity position. In theory you could start an AIM account with only $500, however, I would suggest that you start with an exchange traded fund (ETF) instead of stock of a single company. The reason is that the chances of an ETF going to zero is very small compared to the stock of a single company. Realistically, I would save up more money before starting an AIM account, $5,000-$10,000 is a better number.
Matthew on February 20, 2012:
does the modelwork for any stocks? I dont know where to start. I want to begin with 1000 in case i lose it all i wont feel bad. But its not much and if i bught google i would only buy five shares and its only in one stock. Should i divesify even with 1000? what kind of stocks work best and how many different stock options should i have?
dburkeaz (author) from Gilbert, AZ on June 26, 2011:
Thanks for your question, I have not seen a comparison/back test of AIM vs. value averaging. The concept of value averaging relys on your estimate of what rate of return to expect on your investment. That is a very difficult thing to do, AIM on the other hand does not require any rate of return assumptions. I like the idea of plug-and-chug into the AIM formula then do what it says.
dburkeaz (author) from Gilbert, AZ on June 26, 2011:
I have not used the Automatic Investor software, I do all of my Aiming with an excel spreadsheet.
Jason on June 24, 2011:
Thank you for your back-testing!
As I just come across value averaging.
Is AIM better than value averaging?
Mick on June 10, 2011:
Has anyone used the "Automatic Investor" software (cost = $297) available on the internet? It states that it is based on Lichello's book.
Richard on April 24, 2011:
Thank you for this valuable information! I am back in the game of sensible investing.
dburkeaz (author) from Gilbert, AZ on April 22, 2011:
Richard, welcome back to the AIM world. My suggestion would be to read up on some of the changes that Tom Veale has published, just do a google/bing search, you'll get lots of hits. Also check out the aim-users.com website, it is no longer very active but lots of good information on AIM. Thanks for your comments and keep on AIMing...
Richard on April 22, 2011:
I am reading this and after trying for a decade to find a TA that works (and finally just buying and holding in my self-directed IRA) I am re investigating Lichello's method. I read his book about 20 years ago but back then I didn't have all the access and opportunities to invest that we have now. I am encouraged to read this article and comments and surprised to see that people are actually using the AIM still!! What a testimonial to its effectiveness. After studying I find that it combines conservative investing (by halving possible upside returns) in return for greatly protecting losses by averaging down. Lichello must have been a genius to come up with this formula.
In reference to the remarks about why he uses 10% safe and one month time table. He mentions in his book that you are basically letting the system do the work for you rather than trying to figure out what stocks are going to do next and by waiting to check them once a month you are keeping yourself from making a hasty decision and diverting from a tried and true conservative strategy.
After seemingly coming up with some great strategies using TA (but finding later after paper trading that they all fail in the long run) I can understand that this man was speaking with wisdom and experience.
I am now going to re invest my efforts into studying this technique.
I think that with the advance of technology we have much more resources than he ever dreamed of back then for which to pick better stocks in which to utilize his strategy. Which screening methods has anybody used before that have shown the best stocks to use for this approach?
dburkeaz (author) from Gilbert, AZ on April 17, 2011:
Al D'Anna, thank you for your comment, you have hit on what really drives the AIM engine ... volotility. The more your stock price swings the more buy/sell opportunities you will have.
Al D'Anna on April 17, 2011:
Very interesting I'm using a similar approach with leveraged ETFs (not inverse). Advantage with a 3x type is that you can use 1/3 of the investment to get the same effect. This means you can leave more money in cash to buy as the etf inevitably goes down. Just make sure its an etf that you feel is good for the long term. Also you should use etfs that aren't correlated. Thanks for you article.
dburkeaz (author) from Gilbert, AZ on January 29, 2011:
Conrad, I get the high,low,open,close prices from AOL finance. The 148.25 buy price on 1/3/2000 is the open price not the close price. I think there is only one stock ticker SPY, don't know why Yahoo history would be different than AOL. I appreciate your effort but please don't spend a lot of time on this, especially if the system/software you are using makes it too difficult for a comparison to be made.
Conrad Winkelman on January 28, 2011:
The smallest trade size used was $ 1334 and resulted from the Holding Zone automatically, not from the Minimum Trade Amount function. The Minimum Trade Amount was error.
Conrad Winkelman on January 28, 2011:
In response to my comments on the AIM Forum on comparing Back Testing your AIM Test with a Vortex AIM Test this is meaningless, as Vortex AIM does not have a Standard By The Book Default Form. In Vortex the trading aggression is set by a two free parameters set by the investor to match his investment profile(Conservative or Aggressive).
So have take a step have and did some optimising runs on the 11 year data and basically I get two results:
1. Using rather high Holding Zones which are not typically expected to be applicable(one uses this as one expects high volatility in large swings);
2. Using moderate holding zone which are more often expected to apply.
Other factors in the estimation are:
3. No dividends are used. . .(no idea what they are)
4. 2 % Base Interest per year is compounded each month as I use monthly prices. So the interest is added to the Cash Position;
5. I have done an optimisation run also with the low Holding Zones and the Cash/Equity Ratio at 50% at the start.
My annual yield is calculated with my ROTAI Method:
Return On Time Averaged Investors. . .it is the actual average investment over time;
6. I use a Cash Limiting Factor in the sense that if a Buy is larger that the Reserve I use "brake" on the buying to spend only a portion of it to make it stretch out to lower prices;
7. there were no prices beyond 12-12-2010 date so I used the 03-01-2011 prices as last trading action.
(My comma's are decimal points)
$ 20 000 Investment Total
Minimum Trade Value= $ 1000 for each run
Trading cost = $ 10,95/Trade
Prices from: http://finance.yahoo.com/q/hp?s=SPY&a=00&b...
Result 1 High Holding Zones
Cash to start= 72%
Buy HZ= 40%. . . Sell HZ= 18%
Buy Aggression Factor Fb= 0,8 . . .Sell Aggression Factor Fs= 0,47. . . .as Fb and/or Fs rises Trading amount becomes larger
Cash Limiting Factor = None
PV(End 2010)= $ 33888
ROTAI = 16,6% per year
Trading cost = $ 88 (8 trades)
Interest earned = $ 2917
Run 2 Low Holding Zones
Cash to start= 50%
Buy HZ= 20%. . . Sell HZ= 7,5%
Buy Aggression Factor = 0,8 . . .Sell Aggression Factor = 0,6
Cash Limiting Factor = 0,5
PV= $ 25789
ROTAI = 2,3% per year
Trading cost = $ 164 for 15 trades
Interest earned = $ 2385
Run 3 as Run 2 but Cash to start also optimised
Cash to start= 72%
Buy HZ= 20%. . . Sell HZ= 7,5%
Buy Aggression Factor = 0,8 . . .Sell Aggression Factor = 0,6
Cash Limiting Factor = 0,6
PV= $ 28195
ROTAI = 5,8% per year
Trading cost = $ 164 (15 trades)
Interest earned = $ 2682
I have not tried a run with a lower Minimum Trade Value.
This factor could also be varied in the optimisation but it will be more time consuming. Possibly more intermediate trades would capture more profit. Optimisation is done manually in the Excel Spread.
It is obvious that with a high holding zone more cash can be invested at the bottom price but a 40 % holding zone would eliminate all trades if the stock starts cycling in a low volatility horizontal trading range.
In practice the investor should keep his finger on the buttons to adjust the operational parameters if that is needed. I will make a few more runs later with a lower trading minimum value. If more profits result then the higher trading cost is justified.
Conrad Winkelman on January 28, 2011:
I do not understand where you get you SPY prices from. I downloaded monthly SPY prices from 3 January 2000 to the end of December 2010 and the values I get are quite different than you have placed on your Chart: $ 148,25 Starting Price and I get a closing price for that day of about 135, there must be something wrong. . .How many funds with the name SPY are there?
As an afterthought It is meaningless to compare on a Back Test because the systems operate in a different way.
See additional comments on the AIM Forum today.
Conrad Winkelman on January 28, 2011:
Doug, I will try to find the price download and Report back to you. I will do two things with monthly prices and your guidelines:
1) Set the parameters based on my best guess as to what they ought to be(gut feeling and a bit of experience);
2) Optimize the run for a start Pint on a new investment as of 1/2011 and then run is as I see fit.
I find the trading commission of $ 10,95 per trade high but for this type of fund it is about the same as for trading cost is Holland. . .which stand now at € 10 per trade via the ABN AMRO Bank as broker. . I prefer trading mutual funds for the reason of low trading costs, frequent trading then does not "hurt" as much.
dburkeaz (author) from Gilbert, AZ on January 23, 2011:
Conrad, thanks for sharing your modifications to Mr. Lichello's system. Any way you could take the same data set I used and run it through your system than compare & contrast?
Conrad Winkelman on January 22, 2011:
I have always wondered why the Lichello Brake is set at 10% rather than some other amount. I assume from it that it is a completely arbitrary number. If we apply a 20 @ brake the Cash Burn Rate would be much smaller and on the deeper price dips one would have more buys at lower prices. On the price rising side one would sell off at a much lower Equity Dump Rate and achieve more equity value increase as the price rise continues.
This means that setting the AIM parameters optimally is really a matter of price behaviour. To compensate for this I have developed an AIM derivative (Vortex AIM) in which the sizes of the AIM Trades are determined by Aggression Factors for buying and selling, which would ideally be functions of price behaviour ( as well as investor profile) but this can only to be achieved by analysing previous stock behaviour, optimise all the system parameters for the past behaviour and redo the optimisation at regular intervals so that new prices create the parameter values. For as long as the price behaviour remains reasonably similar. . .for example for a sideways trading range, the optimised parameters will remain approximately constant. This way at least the trade sizes will not be limited an arbitrary 10 % Lichello Brake but will be optimised for a particular equity via the optimisation work. Only if the equity breaks out to far off its characteristic slow behaviour is an "overlay management" move required to safeguard the investment(bail out).
If you do not have an optimisation subroutine in an investment program one needs to optimise manually and that is a time consuming process. I used to use a Vortex AIM Excel spread to do the optimization and the one can simply plug in the paramater values into the trading program.
dburkeaz (author) from Gilbert, AZ on January 12, 2011:
Thanks for sharing your experience, are you using AIM by the book or are have you modified the original algorythem?
Undertrader on January 12, 2011:
I've been using AIM for close to 10 years and it totally works. I'm way up, to the point where I quit my job and just trade stocks for a living. I even created an iPhone app to take all of the work out of AIMing for me, (you can get the app at www.undertrader.com)
While it might not give you the best returns, it will give you consistent returns and it allows you to take the emotion out of trading. Just trust the system.
Penny on January 02, 2011:
I used 75% and 25% with my husband's portfolio using no-load mutual funds and I am up over 50% during one of the worst recession we have had. Also, I switched up the SAFE portion a bit differently as well. With my portfolio, I used 2/3 & 1/3; it did not fair as well due to the type of mutual funds I chose. The good news is that I did not lose much at the beginning because I was well diversified and I am up considering what this recession has done to the economy. One think I liked about this book was it takes the thinking out of it. Also, I have done some tweeking to the system enabling my returns to be higher. Anyways, I recommend this book.
Take care and enjoy..
ruben briseno on November 05, 2010:
I wanted to provide a quick update, sorry I didn't get an update last week.
Well, its been 3 weeks of working my investment strategy of keeping 20k in working capital and pulling off profits and putting money in when I drop below 20k.
So far so good, I ended the week with a balance of $32,274.62! Almost a $5,000.00 increase in about 3 weeks.
I'll keep providing updates.
jet on October 26, 2010:
Instead of using a minium of 20 shares. The minium should be based on dollar value i.e., if the market was to trpple in value it would take a huge move for 20 shares to be sold
jet on October 26, 2010:
I appriciate all the info. I was looking for back testing results for value cost investing. Which seams to be a better way to accumalate a position for AIM then dollar cost averaging. But my thinking was once the account got to big there was no way I would be able to keep up with the obligations needed in a down market like 1929-1932. So I googled constant value investing because the principals are somewhat simular value cost investing.
It would not surprise me if from 1929-1932 AIm would have made money based on the Dow because the market was so volitile. Of course the dow could not be traded & a huge number of stocks & investment trusts (another name for mutual funds) went bust.
@ crash lows I think it would be best to sell options when premiums are high for rebalancing account.
I agree that Spy is one of the better choices because lesss chance of going bust but a 90% or greater crash it is possible that it could.
In deflation almost everything goes down so diversification wont cut it for reducing the amount of cash needed for rebalancing.I think limits should be set for rebalancing account in a down market i.e., I limit the amount of risk in the market so I always have a positive cash flow after living expenses even if all my speculating money in the market went bust.
ruben briseno on October 23, 2010:
I am not a very tech savvy guy, so if it’s ok, I’ll post my info on your page. I’ll just post my results for all to see, just so we can see how the aim model works, and hopefully continue to work.
Currently I am doing what probably any financial advisor would advise against. But that’s me. Basically, I am using my 401k and just reallocating funds, this way I am not paying taxes or commissions, to keep overall cost low. I will buy into my company stock and then when it’s up, shave off the profits to a stable fund, almost like a money market that we have. When it’s down, I’ll put money back in to the stock, pending the price. I have a price in mind that I feel is a good price.
Now, I have a little bit different method. I am trying to keep $20,000.00 in working capital, the rest of the money is in the stable fund. I just like the idea of 20k working, so I don’t use the exact formula as the aim model.
Starting total balance on 10/18 was $27,831.71
Balance as of 10/23 is $29,889.97
I know this is a short period of sampling but I just got the idea to work the aim model last week. I purchase Lichello’s book about 5 years ago but didn’t really have enough capital to work the model until recently, at least where I would be comfortable to work the model.
I deposit about $500.00 per month to my 401k and with price fluctuations, have not seem much growth until this last week. I figured I would try to build as much cash in my stable fund because it pays decent interest and I’m good with a fairly safe investment, especially if I am going to have $1 million in it.
This probably all sounds amateur, but I’m enjoying working the model so far. Until next time.
dburkeaz (author) from Gilbert, AZ on October 22, 2010:
Thanks for posting your results, can you share more information? What have you invested in and when you bought/sold? On a different note, you might want to publish your own hubpage or start a blog with your results.
ruben briseno on October 21, 2010:
hi all, i have been using the aim model for the last week and pulled in about $1500.00, around 4%. earnings week helps with volatility. but i have been adjusting daily and only building up my cash, not depleting, so far. i started with about 65% stock and 35% cash. so far so good. i'll keep everyone posted.
dburkeaz (author) from Gilbert, AZ on September 28, 2010:
Hi WilliamD, Thanks for the positive comment. Your intuition is right on, more frequent checking will likely trigger more frequent buy/sell signals. In a market that is in a prolonged downturn you will always run the risk of depleting your cash, especially if you are checking frequently (weekly or bi-weekly). This is just my opinion but I think Tom Veale has done the most extensive research, modifications, and analysis of Mr. Lichello's AIM system. Just do a Google/Bing search on Tom Veale you'll get lots of good stuff to read.
williamD on September 23, 2010:
Great write up on Mr. Lichello's AIM. Do you know the pros and cons of increasing the the frequency of the buys and sells? It seems that you'd make more with a weekly or maybe even daily buy/sell but, are you at risk of depleting your cash reserve? It wasn't mentioned in the book as to why monthly was chosen over weekly or daily.
Also since Mr. Lichello has past away and can no longer be consulted on AIM, Who's the most authoritative on AIM and AIM research. thanks you for taking the time
dburkeaz (author) from Gilbert, AZ on August 20, 2010:
Hi Roberto, Thanks for your comment, yes you are correct, higher volatility equates to more buy/sell signals and possibly higher profits. One caution, with high Beta stocks, you run the risk of depleting your cash reserves as the stock trends lower than a more stable stock.
roberto on August 20, 2010:
Works better with high Beta stocks than low Beta Indexes. It's all about volatility as in most investments.
jAIMes on May 21, 2010:
Great article! I've used AIM many years ago on one of my mutual funds. I don't remember what happened but I stopped AIMing after some time.
Currently I'm using TA for trading. I'm wondering if anyone has tried to combine TA with AIM. For example, if TA tells me to sell everything, I'll go 100% cash, and then reaccumulate stocks on the way down using AIM. Buy/Sell dollar amounts can also be adjusted with TA readings in mind. I know it's tricky to fine tune a simple and elegant system like AIM without messing it up. Just curious if anyone has already done some studies on this.
dburkeaz (author) from Gilbert, AZ on April 15, 2010:
Gil, Thank you for sharing your experience and knowledge of Lichello and AIM. I suggest that you publish a hubpage with your back-testing results. That would help to keep the interest up.
Gil on April 15, 2010:
I hope you and your readers keep this discussion going. I like the ideas both about Lichello's AIM program and the conversation about market trends. I like your suggestion of using SPY as a benchmark for testing. I'm currently backtesting a combo of Trend Following/AIM to see where the best results would be. I encourage others to also research their ideas using the SPY as a benchmark so that we can all compare our results.
I believe the original Lichello allocation was around 1977 and he set it at 50:50 stocks:cash. He started out very conservative after the bear market maulings of '69-'70 and '73-'74. Later editions cahanged it to 2/3 stock 1/3 cash reserves, and finally 80% stock 20% cash reserves. Testing with SPY from 1993-2010 should give some insight as to what would most likely be the best all-weather allocation ratio. I hope to check back with you all in the near future.
dburkeaz (author) from Gilbert, AZ on March 15, 2010:
Thank you for your comment, I understand what you are saying but not sure how it would be implemented in real time. For example, you have to wait a number of months after the portfolio control stops rising to confirm it has indeed stopped rising. Having to wait for confirmation by default means that you missed the bottom. I like the thought process but for me, too dificult to implement.
ocroft on March 15, 2010:
i just discovered this Aim user site. i am dying to share this observation to Aim investors. The observation to increase your profit margin, is not to buy when the stock
price is falling. Buy when the portfolio contorl stop rising.They are an inverse process. When the PC is rising, the stock price is falling.
In the example,the porfolio contorl stop rising on 9/3.
you would enter the market at this point buying the number of shares that created the portfolio control to rise.
you would have purchased $6,542 worth of stock at $90.00.
This is also safe. I think the profolio control of a stock going to powder, will not give a buy signal for you to invest. your risk is your initial investment.
dburkeaz (author) from Gilbert, AZ on November 27, 2009:
Hi Newdog, thanks for the comment. I believe Lichello adjusted from 50/50 to 80/20 stock/cash ratio in the 4th edition to accommodate the bull run from the mid 80's to the end of the 90's. I wanted to stick with Lichello's original allocation bucause I feel it was developed more for today's volitile markets.
newdog on November 27, 2009:
the book actually suggests 80% stock and 20% cash
dburkeaz (author) from Gilbert, AZ on November 06, 2009:
Glad you found some value in this article, thanks for posting your comment.
neko katz on November 06, 2009:
I found the article well written and a very accurate summary of aim investing. I further found that using s&p a more sedate entity very good as it portrays average stocks performance
dburkeaz (author) from Gilbert, AZ on November 05, 2009:
Thanks for sharing your experience. There has been a couple people (search for some of the work that Tom Veale has done) that have taken AIM and modified the algorithm specifically to address your observations.
Without doing the analysis for 1993-2000 I would speculate that AIM would have you selling during the ascent, which is not really missing the climb more than taking profits off the table as the market rises.
One of the issues that individual stocks have is that in theory they can go to zero (can you spell Enron?) in which case no system will help you. The reason I used an exchange traded fund, SPY, is because the only way it will go to zero is if every one of the 500 stocks in the S&P 500 declined to zero. Basically eliminating a huge failure mode of investing in stock of individual companies.
Finally, you may be right that the 200-day SMA system might give a better performance, but the objective of this article was to test AIM's ability to buy low and sell high not maximize profit. I'm working on changing input variables to AIM to see the effects on profit ... that analysis will be published soon ...
Randy on November 04, 2009:
If you had started in 1993, would there have been any buys as SPY tripled from 1993-2000? Or would AIM have sold holdings and missed on the climb?
When I looked at AIM when the book came out, my conclusion was that it was great for sideways markets (or a sideways stock), but not for trending markets/stocks. There were a lot of people that lost a lot of money buying tech stocks on the way down in 2000 -- stocks that went belly up.
A simple 200-day SMA with 5% tolerance (to reduce whipsaws) on SPY would have given you better performance over the 2000-2009 period (and probably the 1993-2000 period). And I'm not that fond of TA.
Mike H on October 28, 2009:
If I had any money left I would invest!
dburkeaz (author) from Gilbert, AZ on October 26, 2009:
Thank you for the positive feedback and the suggestions on adding links