Lichello A.I.M. Improvements -

Low-Down AIM Mr. Lichello's AIM model for small or diversified accounts

Thanks goes to Steve "The Grabber" for this description and analysis

Steve stripped down AIM to its bare essentials to create a trading machine that required much less initial capital to get rolling and to trade reasonable amounts. If you are starting off with a small initial nest egg or want to own many different investments while getting more trades for the same initial investment, then Low-Down AIM is something for you to consider.

Even if you have $100,000 to invest, there's only so many practical individual AIM investments you can make with that initial principal. If you divide it into too many parts, then each of the traditional AIM accounts will be too small to generate effective trades. By using that same starting principal and Low-Down AIM, you can have many more separate AIM accounts all trading more frequently.

The "upside" of Low-Down AIM is greater trading and diversification. The downside is that one can sell out of a holding that has begun a very long and profitable price appreciation. Of the three reasons people invest, Volatility Capture, Price Appreciation Over Time, and Dividend Capture, Low-Down AIM works best with Volatility Capture.

Here's how Steve G. describes LD-AIM...............

Low Down AIM (LD-AIM) is a method by which one can leverage the Lichello Algorithm in such a way as to improve its effective return and reduce overall risk.

If one were to study the share turnover in Lichello's original 10-8-5-4-5-8-10… example; one would note that that on a LIFO basis the original purchase of 500 shares is never sold. Therefore the question becomes if I'm likely not to ever sell them, why buy them? Would it not be better to only buy the shares that I'm likely to sell?

This then begs the question of how many shares do I actually buy? This can be answered by buying only enough 'Actual Shares' to cover the next 'X' number of Sells based on any set of Safe and Minimums.

The Lichello algorithm requires that the starting Portfolio Control is set based on the initial share purchase value. So 'Virtual Shares' must be carried in addition to the Actual Shares to satisfy the initial Portfolio Control requirements of the algorithm. It is this no cost 'purchase' of virtual shares that allows the leverage mentioned above.

An example can help clarify this approach (see table below). In this example, one can start a program with a Portfolio Control value of 10,000, but only invest $2,700! The purchase will cover 3 Sells and provide a Return on Capital at Risk of $1,035 (38%). Given the same set of transactions, but having invested the total $10,000 would have still provided the $1,035 return, but only 10.4% of your investment. In addition, you still would have $11,264 at risk (730*15.43) after a 54% increase in the stock's price.

Low Down AIM
TRX DATE	Action	Qty	Price	Actual Share Inventory	Virtual Shares	Total Shares	Port. Ctrl. Incr.	Port. Ctrl. Cum.	Cash Position	Stock Value (actual)	Total Value
01/01/03	Bought	270	10.00	270	730	1000	10000	10000	0	2700	2700
02/01/03	Sold	100	12.50	170	730	900	0	10000	1250	2125	3375
03/01/03	Sold	90	13.89	80	730	810	0	10000	2500	1111	3611
04/01/03	Sold	80	15.43	0	730	730	0	10000	3735	0	3735
Classic AIM (with no starting Cash Reserve)
TRX DATE	Action	Qty	Price	Actual Share Inventory	Virtual Shares	Total Shares	Port. Ctrl. Incr.	Port. Ctrl. Cum.	Cash Position	Stock Value (actual)	Total Value
01/01/03	Bought	1000	10.00	1000	0	1000	10000	10000	0	10000	10000
02/01/03	Sold	100	12.50	900	0	900	0	10000	1250	11250	12500
03/01/03	Sold	90	13.89	810	0	810	0	10000	2500	11251	13751
04/01/03	Sold	80	15.43	730	0	730	0	10000	3735	11264	14998

In Steve's analysis it is clear that he is only evaluating the portion of the portfolio that has "realized gains." It is true that unrealized gains are at risk until the investment is sold. Another person might say "Hey, Low-Down AIM only earned $1035 while the Classic AIM example increased nearly $5000." This is also true, but it took more initial capital to get the portfolio working and has left much more "at risk."

Steve has made the LD-AIM Calculator Excel Template available for you do download for free.

Historically, LD-AIM has some similarity to an ancient DOS program called "MyWay" that was available in the '80s. It, too, would scale you into or completely out of an investment in "AIM-like" moves. However, in MyWay there was no "feedback loop" to the system like AIM's additions to Portfolio Control after buying events.

Don C., another contributor, has created a spreadsheet which more closely follows the MyWay method of trading. When a position is initiated, it then calculates the various break points where selling will occur on the way to full liquidation. You also pick the minimum value of the trades you will have along the way. The mirror image occurs on the Buy side. You set up the discount you deem to be logical for the stock and tell it how much cash you will have available and it creates a buying scale based upon your minimum order size to have you buy all the way to that predicted discount price when the cash runs out.

The method is completely scalable, and it will identify for a person, exactly all the GTC order points, total capital needed for a trade cycle, total number of shares to trade each time within the trade cycle, and minimum profit that can be expected when the trade cycle is completed and/or minimum profit with each sell order; plus, 100% protection from running out of cash with deep divers if the user desires to establish that parameter. Thus, before you enter the position, you know EVERYTHING about the trading cycle, except for the maximum profit. You can predetermine what the minimum profit will be for the entire trading cycle, you can predetermine the minimum profit on the smallest trade within the trading cycle, you can predetermine whatever capital amount you want to start with, you can predetermine EVERYTHING about the trading cycle.

Don is contemplating what he might do with this spreadsheet at this time.

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