Customer Reviews

How to Make $1,000,000 in the Stock Market Automatically: (4th Edition)

5 star:		(32)
4 star:		(13)
3 star:		(9)
2 star:		(2)
1 star:		(15)

 

 

I've done exactly what you have suggested many times in the past. I'll add up all my buys during a downward slide and come up with an average price. I've added up all my sells during a market climb and averaged the price. Guess what, it's always profitable.

It isn't so much that AIM works better than flawless trading, it's just that it rarely loses money for the user. Of last year's 85 taxable events in my own account only 13 were at a loss. Those losses were very minor. Of the 13 losses 7 were short term losses. Most of the gains are long term most years (think about the tax savings). My porfolio turnover rate was about 28% and my AVERAGE capital gain for 1998 was 38% including all losses.

I don't think Mr. Lichello wanted us to be mindless robots working the market. Nor did he indicate that his method couldn't be improved. Over the course of years, I've taken the basic AIM model and "personalized" it. The simple improvements I've made didn't take a massive amount of skull sweat, and were easily verified as effective when tested by computer spreadsheet (over 18 years of data).

Even further improvements are still under way by others with whom I correspond. Such items as making the various parameter adjustments using an Artificial Intelligence override to continually optimize the settings.

Please look again at the AIM model, not as a straight jacket but as an example of what investing is supposed to be - profitable. It is a risk management model. There's always a balance between risk and reward. If AIM reduces risk, guess what, it probably has a reward penalty as well. Some of us just might be retired and want to moderate our risk and be willing to sacrifice a bit of performance.

Most AIM users with whom I correspond have been happy to modify Mr. Lichello's basic model for their own ways of investing. I think Mr. Lichello's model is a licence to use it as we see fit and not a rigid profile that can't be changed. Try splitting SAFE into two separate components. Give each its own weighting relative to the Resistance to buying or selling you want. Try limiting the total level of Cash Reserve to a percentage of the portfolio's value. Quit selling when the Cash Reserve gets too FAT. Bump Portfolio Control up instead. All these things work.

AIM is a closed loop control algorithm with a positive feedback loop. One can also adjust the rate, reset value, and intensity of the feedback to vary the performance of the model.

I'm not sure a two year period is long enough of a test period to show AIM's potential. Mr. Lichello's hypothetical model uses 16 price cycles to take $10,000 to his million dollar goal. That's more cycles than can be expected in a two year period.

AIM needs to have significant downward price events periodically to restock the shelves with certificates. Since 1982 we've only had three events of any size to generate much buying by AIM. I don't think Mr. Lichello anticipated the 1982 to 1999 bull run when he designed AIM. It's been up to the users to modify AIM for use in a bull market.

Remember, just because AIM doesn't fit with your methods doesn't mean that it doesn't work. If there were to be an arguement brought about in analysis of AIM's activity, it might be the "time-value" of AIM trades has cash being spent a bit early. However, since AIM is being paid for maintaining a cash reserve in the form of interest, this is somewhat nullified.

Thanks for responding to my post. I'm glad to see the critics are up to my challenges! AIM does not violate the principle of Buy Low, Sell High. Most Short Term Traders leave massive amounts of value "on the table" by selling out too soon. I bought VTSS in 1993. As a trader it's offered many opportunities to sell out profitably. However, it's offered very few chances to get back in. Who would have done best? ST Trader? AIMer? Buy&Hold. In that case, Buy & Hold kicks butt. However, I'm still a substantial holder as well. Current profits are about 1300% and I see no reason to end the ride. ST Traders missed most of the ride.

Best regards, oldcat@execpc.com

I initially read the book in the library and then bought a copy. After wading thru the book, which is roughly 60% filler, I decided to keep an open mind and test out his ideas.

After I created my own Excel worksheet for using AIM (Automatic Investment Management), and did some back testing, I learned that AIM will NOT help you if your stock/mutual fund/ETF, over many months: (1) moves up [or down] in a straight line, (2) moves up exponentially, or (3) moves in a thin trading range. In order to get an excellent return, the ideal AIM stock/mutual fund/ETF movement seems to be like a high-frequency and, what I call, "violently cyclical" movement (i.e. up 150% or more [from the previous year, for example] on the up move and down 60% or more [from the previous year, for example] on the down move). While I'm not sure that any mutual fund has this kind of past movement, I don't think any ETF currently available has consistently shown this kind of movement and fewer than 2% of the top 3,500 stocks have in the past 10 years. (While these stocks can exist in several industries, the semiconductor industry appears to be a relatively fertile hunting ground.)

I have not come across any high-frequency, violently cyclical stock (or ETF), in back testing so far, from the period January 1991 to August 2005, that would have taken $10,000 and turned it into $1,000,000 or more, even before all costs. So the title of Lichello's book is misleading in that regard.

My back testing also showed that AIM didn't beat the S&P 500 (not counting dividends, taxes, commissions and interest for both investments) from January 1982 to August 2005, or from January 1991 to August 2005. AIM, under the same conditions as mentioned above, also didn't beat the NASDAQ Composite from January 1991 to August 2005. Having said that, I am willing to give it a shot using a small amount of money for a few months on some specific stocks to see how it goes.

Happy Investing!

Ever read a disclaimer "past performance is not indicative of future results"?? duhuhh! Obviously!! Don't find many fortune tellers on Wall Street!
Read Mr. Lichello's book 6 years ago, and YES it was wordy and it was a laborious, arduous and painstaking process going through it.. But I'm glad I did coz if my past performance is any indication of the future than I know two fellas up in the sky smiling down at me as I laugh my way to the bank...every month! AIM works! In fact it works brilliantly (I didn't make a million bucks.. I made TWO! and that too in less than 6 years!) THANK YOU MR. LICHELLO may you rest in peace and may God give you special privileges!
The only reason I've given it a 4 ½ stars is coz it doesn't come with software to handle the complex portfolios. Converting the AIM algorithm to spread sheets with all the bells and whistles that I need was even more of a laborious job than reading the book and as some Spread sheet gurus pointed out "couldn't be done coz of Excel's limitations" Well they were right.. some things cant be done in Excel !
Anyway, here's the secret: go for stocks or funds with crazy beta's (that's the key) difficult to find but then you have to work for the million...but not too hard as AIM will do the rest.!

Lichello starts out with an anecdotal review of efficient market theory, without mentioning the term, pointing out that "financial breakthrough books are obsolete by the time you read them" because when lots of people start using the system, it quits working. He then claims his book is different without saying why (but I will tell you).

That much is right on. A lot of the book is story telling, which would be harmless except that Lichello mixes in observations that are correct with some that are not. For example, he observes that individual stocks give more volatility than mutual funds. Actually, economists have been surprised to find fund volatility is nearly as high as stocks. Search for and download Cochrane's readable paper "New Facts in Finance" for the antidote to Lichello's mixed bag. Accuracy aside, it's mildly entertaining reading.

Lichello doesn't address how to pick the stocks in your portfolio, just how to manage a fixed sum of money invested in them. The catchy title has no particular basis. You can make a million with a savings account if you are patient, and also with AIM, including the patience.

Lichello's AIM is a method of rebalancing a fixed portfolio (not necessary to add new funds) between an allocation to stock and a cash reserve. Instead of rebalancing all at once annually or semi-annually, AIM uses a differential formula - what amounts to a digital filter - to gradually rebalance when applied monthly. In theory, this should allow AIM to profit from moves other rebalance methods would miss, and to not be fooled by sudden moves that might skew an all at once rebalance method.

Any rebalance method reduces total returns in exchange for lower volatility, by means of the cash reserve. AIM and AIM-HI are no exception. Assuming investment in a stock or fund with an average annual gain of 10.2% with a standard deviation (risk/volatility) of 28.2%, and assuming no transaction costs and no interest on the cash balance (or assuming the interest just covers the transaction costs), AIM reduces the average gain to 5.1% and the risk/volatility to 15%. AIM-HI gets the gain back up to 8%, but risk/volatility also rises to 22.7%.

So it does about the same thing as ordinary asset allocation systems - which are already widely used, therefore the publication of Lichello's book hasn't changed their effectiveness. There are two reasons you might want to use Lichello's method instead of all at once rebalancing. One is for the possible advantage of his clever filter. The other is because this system, by its very obscurity, will leave you less tempted to make manual deviations, which are often ruinous. The reasons you might NOT want to use AIM are high transaction costs, and the current low interest rates on the cash reserve. It works best in times of high interest (it was developed in the 1970's) and with at least $10,000 per security, which limits risk reduction via diversification.

There are better methods of rebalancing which don't require the cash reserve, and thus don't give up returns for the reduced risk, but they are more complex, and for a description of them you'll have to await my own book, currently in progress.

If you enjoyed this review, go to mc1soft.com and drop me a note and I'll send you a copy of the spreadsheet I used to analyze AIM and AIM-HI. Happy investing!

The investment method in this book is sound and it works. It is truly sad that there are so many people out there who find it so easy to say it doesn't make sense or that it doesn't work when they've never tried it! Those who say that the "sell on the way up, buy on the way down" strategy doesn't work suggesting that you need to ride the peaks have never invested in the real world. Who can know with 100% accuracy when a peak has been reached and who can sell exactly when the peak is reached 100% of the time? Nobody. The strategy helps guarantee profits while providing a high level of protection against catastrophic loss. Like any intelligent investor knows, you invest for the long term not for the short term. So AIM requires patience - nothing new here. You also need to choose your stocks well but even if you don't AIM will still keep you from making a complete idiot of yourself. In my case, I chose a stock, from a solid company, which has ended up varying very little but even here AIM helped me come out ahead. If you are seeking a method which will help you invest your money with relative safety while still making money read and re-read this book and look into AIM but most importantly apply it.

I have never done a book review before. But I want to now.

I am grateful that Mr. Lichello wrote this book and am saddened by his passing (February 2001).

I used to plunge in and out of stocks, constantly in a state of near panic, grasping at every hot tip that came along, driving my broker to distraction.

One day I saw a Jane Bryant Quinn column that mentioned something called an "Automatic Investment Method". Shortly thereafter while browsing in a book store, Mr. Lichello's book attracted my attention. The system changed my approach so thoroughly that my broker even started using it for his personal account!!

The beauty of Mr. Lichello's system is that it takes all the emotion out of when to buy and when to sell. It is almost boringly mechanical. You divide your pot of investing money into two piles: one goes into equities (stocks or mutual funds); the other goes into a money market fund. Once a month, you do a simple calculation. If the value of the equities goes up beyond a "trigger point", you sell a little. If the value goes down beyond a "trigger point", you buy a little.

No more plunging in and out. No more anguish over what to do. Most months, you do the simple calculation and you don't make any transactions.

It works best with a high-Beta no-load mutual fund, which is Mr. Lichello's recommendation.

I've done it with individual stocks and that seems to complicate things. For example, gold shares will run counter to the market, and if cyclical and counter cyclical stocks are included in the same portfolio, they will cancel each other's fluctuations. And if the buy or sell signal calls for a small purchase or sale, then you get stuck with small odd lots.

It is also easy to unnecessarily tinker with and complicate Mr. Lichello's system. But once you get into the swing of it, you will consistently sell high and buy low.

Anyway, buy the book and then make a simple paper work sheet with a few columns, following the example, and start in. It's very simple. Takes all the worry out of investing. Just follow the example in the book. Mr. Lichello refined the system in recent editions to consider regular monthly investments, etc. You can set up a separate worksheet for each category of investment portfolio, such as your 401(k), separate stocks, bonds, etc.

There are several Web sites (search for "Lichello") that provide more examples. You can also purchase a computer program to make the simple calculation even easier.

Anyway, buy the book from Amazon so that you don't have to fuss with hunting for it in book stores. And READ the book. STUDY it. Set up the work sheet. Don't complicate the system. And since you are already on line, check out the Web sites.

As one of the other reviewers said, there are other places to check for selecting stocks, such as Value Line. (For a starter, get the $55 intro Value Line subscription with the book "Wall Street Words" as the premium.) Study the charts to figure out why some companies' stock do well and others fail.

But use Lichello's system as the foundation for your investing methodology and teach it to your children, so when they start working, they also will invest without emotional involvement.

I first read this book when I was 17, when it was in its first edition. 22 years later, with a massive change in market trends, I can STILL see its immense value. Anyone who saw lump-sum holdings PLUMMET during the '88 panic (Dow dropped 500 in that one and risk venture capital became VERY scarce for awhile) should be kicking themselves over AIM not putting away cash for for them prior to that cold, hard winter of economic awakening.

AIM won't tell you what to buy - there are other books out there that can do that. Nor will it, as the author notes, certainly make you a millionaire. What it WILL do, however, is keep cash around so that when the cold economic snows arrive, you can spend your money at the right time - rather than watch it dwindle at the wrong time - and repeat the process every time the market as a whole makes a macroturn. If it makes a microturn (i.e., one stock in your portfolio tumbles because of bad news), that's what Portfolio Manager is there for - to account for the loss so you can protect against further loss. Do you have to buy the same stock you took the loss in? Or is there a better opportunity elsewhere? That's what investor research and choice-making is about. AIM's not a stock screener. It's an asset guard, and a VERY good one!

This book is wordy but, in my opinion and experience, the AIM algorythmn works. Many of the comments about the market must be taken in the context of the late 1960s to early 1980s period when the stock market was an unpleasant place to invest. Who can tell when the market will again disappoint for years? AIM will work in both good and bad markets. This system beats emotional investing. It eliminates the need to identify market tops and bottoms and makes the best use of whatever price changes your investment throws at it. As long as you can trade inexpensively and select stocks with good fundamentals and relatively high betas, AIM will work for you. I rate this book 5 stars because, for the first time in my life, I am able to invest and trade effectively.

If anyone is still skeptical after the massive market bashing that we had between the beginning of August and the middle of October, they haven't fully explored what AIM would have done for them.

In that period, my own cash reserves were drawn down from about 35% to about 5% while I bought up huge quantities of underpriced stocks and funds. Then, my account rose in total value about 18% in October alone. I've already returned many of my AIM accounts to a 30% Cash Reserve level. Thank you AIM and Mr. Lichello!!

AIM is portfolio risk management, plain and simple. It automatically adjusts asset allocation between equity and cash to protect profits in rising markets and then reinvest the proceeds when the market is falling.

An AIM users group can be found by using a search engine and the work "LICHELLO" if you care to hear what other AIMers have accomplished. Good luck and AIM High!

I will forgive the author for making a salable book out of a relatively simple comcept. While the concept may be simple it seems to be missed by most. Twenty years with the some of biggest and best known brokerage houses, with their MBA's and research departments, failed to come close to the returns achieved in one year with AIM. Bull market aside, fifty percent returns on a stock which has yet to get back to the original purchase price is a result I can live with. Thirty to fourty percent returns with nearly half the value of the portfolios in cash (and not at risk). The concept works. Try it. You'll like it.