Automatic Investment Management – AIM

Robert Lichello's Automatic Investment Management (AIM) Stock MarketAIM is an investment method devised by the late Robert Lichello in a book with an unfortunate name.  He coined the name and acronym AIM: Automatic Investment Management.  This method is a proven way to take advantage of the inevitable Market swings to enable us to ‘Buy Low / Sell High’ – which is of course the Holy Grail of making money in the Stock Market.

Robert Lichello is a self-described ‘tinkerer’ who was convinced that he could come up with an: “Automatic Investment Management system to enable the investor with a lump sum of money, however small, to buy and sell – trade stocks as portfolio managers do – and multiply his portfolio many times without putting any new money into it”  (Fourth Edition; 2001; pg. 6)

His book and his plan became quite a hit (although the title is quite cheesy.)  The method is quite simple and intended to answer the dilemmas we’ve discovered in our analysis of the other investment methods above. 

Here’s a Summary of some of the Goals of the AIM Strategy:

  1. The system should demand minimal attention.
  2. Minimize losses, provide clear signals for buying and selling, and provide significant upside potential.
  3. Enable an investor to take profits as soon as they appeared rather than waiting for the pot of gold at the end of the rainbow.
  4. Use profits to multiply your investments (by using them to invest at lower prices.)

AIM Attempts to Answer Some of the Investors Hard Questions…

–          When I’m beginning an investment program, how much should I begin with?

–          How much should be kept in a cash reserve?

–          When should profits be taken, and how much?

–          When, and how much reinvestment should be implemented?

To Master the Market, we’ve got to understand the value of compounding and how to do this within the Market.  Here is a timeless parable from Robert Lichello’s Automatic Investing Model:

“…You can’t really be rich in the stock market just by multiplying your own money…You get rich by multiplying your money and the market’s money.  You buy two shares of a $5 stock for a total of $10 and the stock doubles.  You’ve got $20.  Now, instead of nodding in approval, relighting your pipe, and resuming you’re rocking on the front porch, if you sold a share and tucked that $10 in your shirt pocket, it shouldn’t matter to you the slightest if the market suddenly goes to hell and drags half of Wall Street with it.  Because you can’t lose a penny of your original investment.  It’s safely buttoned up in your pocket!  However, you still own one share of a stock – a freebie – and that share of stock is worth something now and may be worth a great deal more in the months to come.  In effect, the market is subsidizing your free ride.”

 “Suppose the price of that stock is now $5, down from its high of $10.  It has lost 50% of its value.  But since you have a $10 in your shirt pocket, your total worth is $15.  You’re still ahead 50%!  Feeling magnanimous, you stop rocking long enough to take the $10 bill from your pocket and buy two more shares of the stock.  You now own three shares of the stock, and lo and behold, it eventually doubles in price.  Your total worth is now $30.  The stock has doubled in price, but you have tripled your original investment!  Those are the bones of the Automatic Investment Management system.”  (pps 36-37)

Here’s some Groundrules of how the AIM Strategy works:

  1. When starting with a lump sum, only invest 50% from the start.  If establishing a monthly investment plan, also split this allocation to 50% invested (after all, there’s a 50/50 chance the market will go up OR down tomorrow!)
  2. Utilize a cash account to maintain your investment reserves / gains, awaiting further investment (starting with the second 50% of your lump sum, and then including the proceeds from sales as well as 50% of any subsequent monthly investment.)
  3. Be prepared to sell a portion of the gains you have realized and deposit them into your cash account, per the AIM algorithm.
  4. Be prepared to buy some back with your reserved cash account when the stock declines.
  5. Set a routine period of time in which to analyze the markets direction, and take action.
  6. The algorithm is relatively simple.  It involves several key points:
    1. Portfolio Control:  Running total of your stock purchases (total initial purchase plus 1/2 of follow on purchases; however it is never deducted from in a sale) in order to keep a basis of where the portfolio should ‘aim’ to be.  This is the ‘governor’ of the system – it drives the initial assessments about buy and sell decisions. 
    2. Buy/Sell Advice:  Based upon the current Stock Amount (currently owned shares times current price) compared to the Portfolio Control figure.  When the Portfolio Control amount is larger than your current Stock Value, you will look to buying (the Market is down.)  When your current Stock Value is higher than your Portfolio Control, you will look to selling (the Market is up.)
    3. SAFE (Stock Adjustment Factor Equalizer):  10% of the Stock Amount – After you do the analysis in [b] above, you compare the results to your SAFE amount – you only pull the trigger on a sale or purchase for the amount of Buy/Sell Advice less SAFE; this controls you from selling or buying too prematurely.

These seem a bit complicated at first, but they are in fact really simple for any spreadsheet.  Indeed this system seems to have it all!  It addresses all of the concerns we identified previously…

I don’t want to have to do a lot of analysis of stocks in order to pick one – But I want to buy things that make sense and I can trust

THIS MODEL WORKS WITH ANYTHING – STOCKS, FUNDS, OR ETF’S!

 

I don’t want to have to do a lot of analysis of trends to know when to buy or sell – Market Timing is impossible!

THIS MODEL TELLS US WHEN TO BUY AND SELL, AND HOW MUCH!

 

I want to have coverage of the applicable markets to default to the market’s averages over the years

THIS MODEL, WHEN USED WITH A MARKET FUND, WILL THEORETICALLY BEAT THE MARKET AVERAGES!

 

I need a model that ASSUMES the Market will go up and will go down – not just hope it goes up!  And it needs to be a PROVEN MODEL!

THIS MODEL NOT ONLY ACKNOWLEDGES MARKET VOLATILITY, IT REQUIRES IT!

 

 This model needs some more investigating!

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