Tom and all,
Found these gems on the Motley Fool Foolish Workshop message board. Thought you might find these interesting...
Subject: A different type of unemotional investing Number: of 6148
Author: soccermom1 no profile | no interview Date: 9/4/98 9:22 PM
Is anyone familiar with a book from the 1980's called "How to Make $1,000,000 in the Stock Market Automatically" by Robert Lichello? It discusses a different approach to mechanical investing (he calls it A.I.M. - Automatic Investment Management), not having anything to do with screens or stock picking. Rather, it applies the use of a matical formula to signal buy and sell decisions based solely on a stock's price movement. For example, he suggests starting a $10,000 investment with $5,000 in a stock (any stock) and $5,000 in cash. Based on price
performance, one would then rebalance the stock/cash ratio monthly, buying more stock when the formula triggers a buy signal, and moving a certain proportion to cash, again based upon a mathematical signal. The more volatile the stock, theoretically, the more one can profit. Lichello calls it an automated money machine.
While the premise is interesting, the method seems to require a great deal of trading of small amounts of shares, where even the deepest discounted brokers' costs would eat into profits. At any rate, I was wondering if anyone out there knows of this system, or, better yet, of any variations on this type of mechanical investing.
Cathy
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Subject: Re: A different type of unemotional investing Number: of 6149
Author: sparfarkle no profile | no interview Date: 9/4/98 9:44 PM
Cathy, you wrote:
"Is anyone familiar with a book from the 1980's called "How to Make $1,000,000 in the Stock Market Automatically" by Robert Lichello? It discusses a different approach to mechanical investing (he calls it A.I.M. - Automatic Investment Management), not having anything to do with screens or stock picking. Rather, it applies the use of a matical formula to signal buy and sell decisions based solely on a stock's price movement. Based on price performance, one would then rebalance the stock/cash ratio monthly, buying more stock when the formula
triggers a buy signal, and moving a certain proportion to cash, again based upon a mathematical signal. The more volatile the stock, theoretically, the more one can profit. Lichello calls it an automated money machine"
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If Lichello calls it an automated money machine, then it must be fool-proof (with a small "f").
Just kidding. Cathy, I have seen this book, and if you own it, throw it away immediately.
The A.I.M. strategy that he recommends is a simplistic version of the "scale trading" strategy often employed by futures and options investors. Scale traders define how much they want to commit to a certain investment in, say, an option, and then, as the option goes down in price they buy a bit more. The "scale" part of the name comes from "scaling into" an investment--one that's sinking.
Lichello's A.I.M. strategy centers on buying and continuing to buy as an investment drops in price--because later it's going to skyrocket--GUARANTEED. Not all stocks that sink, rise again.
If you want proof of this, pick up the book "What Works On Wall Street" by James O'Shuaghnessy, where he tests what happened if you concentrated investments in the stocks that dropped the most in the market each year. His finding was, that over 40 years, an investor
starting with $10,000 would end up after four decades of investing with quite a bit less than $10,000.
Lichello's A.I.M. book is a little paperback often sold in grocery stores, and it has a kind of pseudo-intelligent, "hey you're really a value spotter now" kind of tone. The concept sounds good too, doesn't it? Keep buying more and more stock no matter what the levels sink to.
When the stock goes back up, you'll make bags of money. Hence the "automated money machine" part of the equation.
They don't all go back up. Only good, solid value investments do.
Sparfarkle
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Subject: Re: A different type of unemotional investing Number: of 6149
Author: dswartz read profile | no interview Date: 9/4/98 10:23 PM
This sounds like a crock, frankly. Like one of Wade Cook's "How to make a bundle on Wall Street" books or seminars. Maybe I'm missing something, but doesn't this idea require investing in a stock that goes up? If not, how can you make money (unless shorting), and if yes, how do you pick the stock?
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Subject: Re: A different type of unemotional investing Number: of 6149
Author: elann read profile | no interview Date: 9/5/98 2:46 AM
Is anyone familiar with a book from the 1980's called "How to Make $1,000,000 in the Stock
Market Automatically" by Robert Lichello? It discusses a different approach to mechanical investing (he calls it A.I.M. - Automatic Investment Management), not having anything to do with screens
or stock picking. Rather, it applies the use of a mathematical formula to signal buy and sell decisions based solely on a stock's price movement. Based on price performance, one would then rebalance
the stock/cash ratio monthly, buying more stock when the formula triggers a buy signal, and moving a certain proportion to cash, again based upon a mathematical signal. The more volatile the stock,
theoretically, the more one can profit. Lichello calls it an automated money machine Let's try an example.
Start with $10000. Buy stock for $5000. Pay $10 commission.
Balance: Stock - $5000, Cash - $4990.
Stock drops 10% after one month. Buy stock for $250.
Pay $10 commission.
Balance: Stock - $4750, Cash - $4730.
Stock rises 11% next month (so we're practically where we started). Stock value is $5272.50.
Sell $270 of stock. Pay $10 commission.
Balance: Stock - $5002.50, Cash - $4990.
Bottom line - You lost $7.50. Your broker earned $30.
Conclusion - Put the book in the circular file.
Elan
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Greg
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