Most Helpful Customer Reviews
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22 of 22 people found the following review helpful:
4.0 out of 5 stars
Boy! I guess I stirred the Pot!!, August 25, 1999
By A Customer
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
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19 of 20 people found the following review helpful:
3.0 out of 5 stars
A Few Limitations of AIM, September 3, 2005
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!
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41 of 49 people found the following review helpful:
3.0 out of 5 stars
Beta-Blocker Dampens Volatility & Returns . . ., December 29, 2003
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!
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