Q...........
Tom Veale wrote:
> Hi James,
> I noted your posted letter at the amazon.com Lichello page. I'm a died in the wool AIMer and have been for over 10 years. If you would like to look at the web site I've dedicated to AIM and meet other users, take a look at:
>
> execpc.com
> AIM's real, it works with real time investing and with slight
> "improvements" it can keep up nicely with other methods of investing while keeping the risk under control. Please let me know what you think!
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Hi Tom,
Thanks for the E-mail. My own personal experience with AIM: I bought his first edition, I think it was published in the late 70's. Before
committing real money, I like to paper-trade to test the system. I
picked 25 stocks and followed them for about a year. I thought I had a good mixture of blue chips and wildly speculative mining stocks. I don't remember which blue chips I had, but one of them went from about $60, down to as low as $55, and up to about $65. I don't think I got any trading signals from the system. A couple of mining stocks went down and stayed down, I kept buying as the price dropped, never recuperating. After a year of following it, I lost confidence in the system and never used any real money in it. I bought his most recent version, figuring that he had new material and had made his million. I was somewhat disgusted by his revelations on page 183 and completely wrote off Lichello and his system.
I went to visit your site earlier tonight. I had a feeling you had to
tinker with his system to make it work. To quote you from your FAQ page, "AIM comes up short". A2 addressed one of the weaknesses of the book, its lack of coverage on stock selection techniques. For his system to work, you need a volatile stock with a short cycle, one which will rebound after going down in price. I don't remember Lichello mentioning that as a criteria for his system to work, hell, he has his ideal fantasy stock which rhythmically goes through 2 cycles from $10 to $4 each year. Later in the book, he used the Rowe Price numbers and made under 100% in 10 years. I was not impressed.
A8 addressed another fundamental weakness in his system. His system tells you to deplete your holdings as the stock price goes up... that way, when the price tops off, you have fewer shares to sell... IS THERE SOMETHING WRONG WITH THIS PICTURE... Common sense (buy low, sell high) tells you to hold onto your shares as the price rises and sell after the price stops rising. I use the "Windows on Wallstreet" software (about $50) to track my stocks. When my stocks rises, I wait until they run out of steam before selling. In addition to visually seeing the price graph, I use trendlines and moving averages. If I'm interested in a stock, I look at its performance. If there's a general downtrend, I wait until it stops going down and turns around before buying.
I have a question. Could you have done better without AIM than with AIM? Looking at the Boston Scientific data, there was a purchase at $50 around June of 1997. At that tiem, the general trend seems to be going down. While it is not possible to predict the tops and bottoms, it is possible to see the general trend. There was also a sale made around $64. At that time, the general trend seems to be going up. All the other trades were at price trend reversal points. By looking at the price at the time of the trade, you could not have known whether there was a reversal or not. When you sold at $60, you couldn't have known that after dipping to $55, it would rebound to $70. The $60 was a good trade, made at what seemed at the time to be a reversal point. However, that could not be said about the sale at $64.
Best regards,
James
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A................
Hi James,
Several things brought me to the use of AIM for all my investing. I'd been trading stocks in a short term method for some time and had been "successful" in that my portfolio was growing and I was paying taxes. Prior to my time of st trading, I'd been pretty much a buy/hold investor.
I felt that st trading didn't justify the amount of time I spent on fundamental analysis of the stocks that I wanted to use as investments. If I bought a stock at $10 and it went to $20 and I sold, it looked good to Uncle Sam and my portfolio grew. However, the sale of 100% of the position looked pretty stupid when the stock eventually reached $100. Several times in the last decade I would have hit the road and sold out of a position that has since grown significantly. I tend to select stocks and hold my positions for very long periods of time - usually in excess of 5 years. I have some new holdings in my portfolio, but most were there at the beginning of the decade. At this time, I have only one stock that I've held more than a year that's currently showing a loss - and it's near break even. Uncle Sam would kiss me all over if I were to liquidate my portfolio now.
It was never easy for me to insulate myself from market psychology, so a method like AIM helped me to avoid the pitfalls of greed and fear. I'd modified my buy/hold habits by raising cash in the late '70s. I used this cash for "buy the dips" type activity. Then I sort of got carried away with short term trading in the mid '80s. Buy the Dips works as long as there's some proportionality to it. Doubling one's position because of a 10% discount doesn't make sense. Unfortunately, I didn't realize this at the time. Again, AIM took care of this by being a better "purchasing agent" than I.
Since I'd worked my way into a sort of AIM-like pattern on my own, accepting Mr. L's method was easy. It took some time to realize that the "one size fits all" formula wasn't going to cut it in the real world. Like all the tools I've collected over the years, almost all I've used in ways that the inventor didn't plan! I guess that's also true of AIM. Limiting the equity/cash ratio and temporarily ending selling has been the single biggest benefit I've found. Manipulating SAFE has been most effective in managing mutual funds and less productive with individual stocks.
It sounds like your prescient vision is clearer than mine! I have always been better at hindsight! Since AIM is a retrospective system, hindsight is just right for it. For me, my 20/20 hindsight has always been better than my 50/50 guess about the future.
Even though the most interesting stocks to manage with AIM are the high BETA stocks, several of the AIMers use DOW 30 stocks as well. Not as much spice, but still long term good holdings. I tend to gravitate towards small caps - and that's been a major embarasment the last 2 years - while my Large Cap bretheren have been kicking my butt.
Another group has applied AIM to sector funds and done quite well. They tend to have more BETA than typical diversified mutual funds while still giving good AIM-like activity.
I've taken serious looks at TA in comparison to AIM. Of note is that the long term effects are quite similar. If we assume the use of the same equity for very long periods of time, TA trading many times equals the same "average price" that AIM achieves. As in the example presented this week, the first buys and sells weren't necessarily very efficient but the average price of the buys and sells is very close to what TA would normally have achieved. The biggest difference is that if one guesses wrong with TA, it may be a long wait for the next opportunity, but with AIM, there's still cards to be played.
The final reason that I'm content with AIM can be stated in two ways: First, it's freed a great deal of time that I used to devote to "ticker addiction." Second, I sleep well at night knowing that AIM will take the bumps out of the road to long term capital gains.
Best regards, Tom |
