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To: The ChrisMeister who wrote (1850)	10/13/1998 11:33:00 AM
From: OldAIMGuy	Respond to of 4710

Hi CM, AIM's a proportional control algorithm. It establishes a risk envelope around one's core position. If you were to invest $10,000 in an equity, this would be your basis for your risk management (the AIM term is "Portfolio Control"). You then use the value of the equity plus or minus (depending on Buy or Sell action) 10% combined with the 10,000 to come up with your next trades. Example1, Selling: Starting point (Portfolio Control)= 10,000 Value when next checked = $14,000 First add 1400 to 10,000 to equal 11400. Next subtract 14,000 from 11,400 which equals = ($2600). That's how much AIM would want you to sell of your position. Example 2, Buying: Portfolio Control = 10,000 Value when next checked = $7500 First add 750 to the $7500 to equal 8250. Next subtract 8250 from 10,000 which equals = +$1750. That's how much more stock AIM would want you to buy at that value. As you can see, the further you are from the starting point at the time of your next evaluation, the larger the order will be. The 10% of current value is termed SAFE. It serves to temper the enthusiasm of the buying and selling. Further, each time that AIM buys, it increases the risk envelope slightly. It adds 1/2 of the purchase value to Portfolio Control. This allows the portfolio to grow over time. In the Buy example above, 875 would be added to the 10,000 Porfolio Control. So, the next round of buys and sells would then be based upon 10,875. Mr. Lichello designed AIM during the '70s when the market was oscillating in a trading range with a flat trend line. He assumed that the Cash held in reserve would rise to a new high point in dollars, but not in percentage of total value before it was recycled to buy more shares. The reality of the '80s and '90s has been that the trend line has been consistently upward. Using Mr. L's AIM strictly "by the book", would have led users to have enormous cash reserves, but also to have rather sedate total performance. The cash reserve would have been an enormous anchor. My own experience let me to create artificial caps on the Cash Reserve. In the case of VTSS, it was between 45% and 50% of the total value of the portfolio (equity plus the cash reserve). I then "trick" AIM into thinking that I've sold some shares when in fact I haven't. I artificially increase the Portfolio Control value to stop the selling and keep the Cash Reserve where I want it. After the cash is diluted by further growth, I then resume selling. This was as brief as I could think to make it! Hope it helps. AIM asks the question "If you were only willing to risk $10,000 at the bottom of the market, why would you be willing to risk $20,000 at the market top?" I use AIM as my inventory control management tool. I build inventory when prices are down and reduce inventory when prices are up. So far, so good. AIM compounds LIFO gains with each market cycle to build the portfolio. Best regards, Tom