REPORT - WEEK OF 12/24/2001: The knee jerk reaction to the 9/11/2001 attacks on the World Trade Center and Pentagon show up all the more clearly this week in my Speculation Index. It jumped another 11 points this week. There were 16 stocks shown on the Best Performers list that had jumped over 100% since the post attack dates. This quarter's best performer was Art Tech with a solid gain of 285% in just 13 weeks.

So, don't let the massive jump in the Idiot Wave this week be too upsetting. It should start to level out again after this statistical anomaly passes.

This crossed my mind the other day: What if the World Trade Center had been struck by a meteor? How would the markets reacted relative to what actually did happen? What would the prognostications been if the event hadn't been "man made?"

I'm looking forward to getting 2001 behind me. I'll be reviewing the last 12 months in my year-end newsletter next week. I've been doing this for several years. It helps me gain some perspective on what goes on.

Happy New Year

From Port Washington, WI, USA

REPORT - WEEK OF 12/17/2001: As I mentioned a few weeks ago, we are now 13 weeks from the re-opening of the stock market after the World Trade Center and Pentagon attacks. This has skewed some of the Idiot Wave's statistics. My Speculation index is now referencing prices that were near their low points. This makes it look like we now have massive speculation. Two weeks ago there was just one stock listed on the Best Performers that was up over 100% in the previous quarter. This week there were 15 stocks up at least that much. If the price was cut "in half" on the 17th of September and now "doubled" from its low, it would be right where it started before the attacks. However, the knee-jerk reaction shows up in my data as a spike in speculation.

The other component that rose dramatically this week is my ZEAL. It has risen because of the WTC attack as well. In the weeks just prior to the WTC attack there were about 7850 to 7900 individual issues being traded on the NYSE and NASDAQ exchanges. The week of the attack there were just 7300 issues traded (thinly traded issues didn't get their chance). So, my Zeal value is reflecting the reduction in issues being traded after that. This week there were 7771 issues traded. Zeal will line itself out again over the next few weeks just as the Speculation component.

In the mean time we're going to see these higher values in the Idiot Wave. 43% Cash indicated isn't the end of the world and truly there has been a return of some speculative activity in recent weeks. Value Line's P/E ratio bottomed the week of October 8th at 15.4 but this week is showing 18.9. Some of that change is decline in earnings and some is the return to higher prices. Just prior to the attack the Value Line P/E was around 18. Both the NASDAQ Composite and the DOW have risen above their pre-attack levels. This P/E makes sense. It also means the market may have gotten a bit ahead of itself. So, maybe the Idiot Wave's rise in risk level isn't too far off the mark for now.

Just one AIM trade was done last week. I sold 13% of my GNSS shares at $66.21. This has provided some extra liquidity as well as giving me a very nice gain.

We're at that time of year when people start to attempt to measure their performance on their accounts. Our Equity Warehouse business requires us to do some special measurements compared to others. First, against what benchmark should we be measuring our results? Fellow AIMer Andy N. makes sure he compares the the number of shares as part of his analysis. This is important in a down year. AIM Equity Warehouses will have lots more inventory in a down year than the previous one. That new inventory has the potential to generate profits in the future. So, we can't ignore our inventory size. So, here's some ideas for you:

I would put the least emphasis on the last measurement - against averages - and the greatest on performance compared to your long term goals. If one year is a 50% gain and one is a wash, then the two together still should be ahead of your goals. When we close out the year 2001 I'll post my results as closely as I can.

With the short trading week next week, I'll probably not get the report written until after Wednesday. I wish all the AIMers a happy Holiday time and a healthy and happy 2002.

REPORT - WEEK OF 12/10/2001: I took time this week to rebuild the data base for my PIC list. It was a big job considering there's about 20 stocks and almost a full year of history for each one. The results are twofold. First, the PIC method of choosing stocks looks to be a sound one even in as unusual a year as 2001. The "Buy and Hold" investor who chose the PIC stocks would now be ahead by 1.5%. Second, "active management" using AIM during a turbulent year proved valuable. In this case, AIM/PIC is up for the year to date by 9.45%, easily beating Buy And Hold. (please note that for the same time period, the DOW is down 6.8% and the NASDAQ is down 18.2%)

As I updated the weekly prices and trades of the PIC list I knew full well what has happened this year. It's amazing how the sinking feeling returned as I approached the week of September 11th. I watched as AIM allocated cash, took profits and waited for whatever came next. I was surprised by the two weeks just prior to the WTC and Pentagon attacks. Most of the PIC stocks issued Buy Market Orders in those two weeks. In other words, things weren't that rosy all by themselves. Then the weeks of Sept. 17th, 24th and Oct. 1st came. Where there was still cash available, most of the PIC stocks bought as heavily as they could. Many zeroed out their Cash Reserves. This is a "theoretical" portfolio, so no emotions were involved in following AIM's suggestions. It would appear at this point that those purchase decisions were valid. PIC/AIM is leading "buy and hold" out of this recession market. Active Management DOES WORK!

A bit of work has occurred at the Warehouse this week. We shipped out 5% of WPC at $22.85 giving us a LIFO gain of 35% in two years. It's nice for the Total Return that we've been collecting rent of about 10% per year (dividend) all the time it's been stored here! JBL was offered at $28.50 (4% of the portfolio) and bought giving the Warehouse a 70% LIFO gain. Even the index fund QQQ had buyers at $42.75 (6% of the portfolio) bringing in a 47% LIFO gain.

You will note at the top of the page I've included a link to my wife's family Christmas Pudding recipe. If you've never had a "figgie pudding" you are in for a treat. If I think of any other good ones for the Holidays, I'll post more later.

I'd like to hear from anyone that has an opinion about The Motley Fool web site and bulletin boards. Right now it's a free service and might make a compatible home for the AIM Bulletin Boards. Right now Silicon Investor is doing a good job, but is only available to members. There's concern that because of financial considerations SI might cease to exist, leaving us without a gathering place. If you know of another bulletin board service that is easy to use and not cluttered with spammers and bashers, I'd like to hear about it. Thanks!

REPORT - WEEK OF 12/03/2001: All four components of the Idiot Wave rose this week pushing the "raw" value up three points. I'll be reporting the Idiot Wave in terms of the RAW data from now on. Should you wish to know the "smoothed" IW value, you only need to subtract the Oscillator value from the raw value. The graph now presents only the smoothed and raw versions of the Idiot Wave without the Oscillator being plotted. I hope everyone likes this new way of presenting the IW data.

Air Transportation is the single largest Sector represented in this week's Value Line Worst Performing Stocks list for the last 13 weeks performance. Seven of the forty one stocks shown are from that sector. Now, I've never been a big fan of the airline stocks as most of those companies have never figured out how to earn a buck from what they do. However, there are a couple of good companies and as is usual with the market, the good ones have been punished along with the bad. Guilt by association. I think we all can agree that Sept. 11th has made a significant change in how people view air travel. However, air freight, for instance might not be affected the same way as commercial passenger service. Packages aren't afraid to fly! Is there something here of value for us to study?

With Tax Selling Season in full swing for the next 4 weeks, there will be some peculiar statistics if this year proves to be like ones in the past. On top of the seasonal peculiarities, we are now about 13 weeks away from the World Trade Center and Pentagon attacks. This will affect my Speculation component by rising in a knee-jerk reaction to the lows posted just after that event. Even so, we're seeing a slight rise in this component. Speculation is hard to kill. What will the gamblers do if they can't speculate in the stock market? This week, for instance, there are two Value Line stocks showing over 100% gains in just the last 13 weeks (predating the attacks). This follows eight weeks where there were NO STOCKS which had achieved a double in their previous 13 weeks. By today's Idiot Wave reckoning nine weeks since the attacks were considered Low Risk periods for starting new AIM accounts or adding to one's position. At this point the NASDAQ is up nearly 36% from its post-attack low while the DOW is up about 20%. So far it looks like the Idiot Wave made a pretty good call.

The only AIM trade that I managed last week was to sell 11% more of my GNSS position at $57.04. That was about 10% higher than AIM's previous sell price. This stock is now very profitable for me after just two years of AIMing. See my Genesis Semiconductor History for a more complete story of how AIM has handled this volatile stock in a peculiar market.

REPORT - WEEK OF 11/26/2001: This week I'm presenting the traditional Idiot Wave (IW) values as seen in the tables above and also a graph that shows the "old" Idiot Wave and a "new" version. Because I've been concerned that too much attention has been paid to the actual value of the IW and possibly not enough to the Oscillator, I decided that maybe a change was needed. The result is an Idiot Wave that has greater range and also rate of change than the original. The Oscillator's function has been to show direction of change and also rate. However, when included in the Idiot Wave graph, it shows a much more reactive nature.

Events of the last two years brought to my attention that the Moving Averages used in constructing the IW in the past may, in fact be hindering it from calling out extremes in the market. Recently, after the WTC/Pentagon attacks the IW dropped from 39 to about 30 over the period of about four weeks. During that time the NASDAQ dropped from about 1700 to near 1400 and returned to about 1700. Although not many investors were doing much but holding their collective breaths during that time, it still indicates that a "lower low" was hit while the IW was still descending. If we look at the IW value minus the Oscillator value we see that the lowest potential value occurred with the report on October 1st. It shows the IW at 34 and the Oscillator at minus 10 for a total of 24. This low point is reached when the NASDAQ is still below 1500. That saved the new AIM investor (and some who still had cash) about two hundred NASDAQ points.

Going back in time to the March, 2000 market peak, the IW would have been begging us to raise our cash reserve levels all the way to nearly 75%. It also reacted quickly enough with the "bear market rallies" since to have warned AIMers to be taking profits and not hesitating.

Now, to see if this idea held water over a longer period of time, I went back into the IW database to 1982 and built a graph showing through 1998 (about as much data as I can cram into that old DOS spreadsheet without it splitting a gut).

So, it would appear that I could eliminate the Oscillator value on a weekly basis as the IW itself incorporates the rate of change and direction this way. I still have some work to do, such as verifiying that the average value is still centered at about 40, etc. One part of me wants to say, "If it ain't broke, don't fix it!" The IW has been very good for nearly two decades. At first blush I thought it was maybe too reactive. In the light of how the world looks since September 11th, it seems to me that maybe something more responsive is in order. I know from the many email addresses that I've received since my hard disk failed on the computer that many of you are not Silicon Investor readers. So, if you feel strongly about this potential change, please let me know via email if not on SI.

Since the last report we've shipped out some inventory from the Equity Warehouse:

REPORT - WEEK OF 11/19/2001: The appearance of the Idiot Wave's 6th week indicating Low Risk is a little deceptive this week. Although strictly showing Low Risk, the Oscillator has unfortunately indicated that risk is starting to rise. It's not surprising with all four components rising for the week. With two showing Neutral and two Bullish, we were able to keep the Idiot Wave right on the edge of the Low/Average risk border.

So, those of you who have been fortunate enough to have AIM trip a Sell trade or two should feel good about your fortitude. It would appear that selectively the Technology Sector has been doing the best over the last six weeks. With the Nasdaq 100 Index being heavily weighted with Tech Stocks, it has done well also. This week my QQQ holding tripped yet another Sell order liberating an additional 5% of my holding at $40.35 which generated a LIFO gain of 38.6% above its cost. Those shares were bought just two months ago.

Good friends are joining us for Thanksgiving. They'll be driving about 500 miles to get here. Along the way they'll be picking up their son in Chicago. I think I'll stop at Ewig's Fish Market and pick up some smoked salmon to make up some spread. Here's the recipe for those that might want to try the same. It makes great snacking while visiting with friends and relatives:

Now, if you have the time to go catch the salmon, smoke it and then make this spread up, that's fine. It will make the snack all the more meaningful. Actually almost any smoked fish can be substituted for the salmon.

Boy! Things must be pretty boring for me to be putting recipies here in the newsletter! :-) I'll be having some of my spread on Thanksgiving while watching the Green Bay Packers and Detroit Lions game. I guess I better save room for some dinner, too!

REPORT - WEEK OF 11/12/2001: Our 5th week of Low Risk signaled by the Idiot Wave. This is good news for investors. It doesn't mean there's no risk for us, but that it has been minimized by the tremendous bear market of the last 19 months and the attacks on the World Trade Center and Pentagon two months ago. My Speculation Index probably tells it best. The Best Performing stock in all of Value Line's 1700 stocks over the last 13 weeks managed to rise 54.7%. The Worst Performer is down 92.2% over the same period! Speculation is washed out for now.

A more stubborn area of the Idiot Wave has been the Divergence component. This is Fosback's Hi/Low Logic Index as applied to the NASDAQ market. It's currently Neutral and has only spent one week out of the last five in the Bullish camp. However, there's something happening inside that statistic. It measures the number of issues hitting new 52 week highs and lows against the total number of issues being traded on that exchange each week. Since August 10th the number of new Lows has exceeded the number of new Highs every week until last week. So, with the Idiot Wave now at Low Risk, we're finally seeing the number of new Lows shrinking. (the number of new Lows peaked the week following the WTC attacks, at 1365 with only 114 new Highs out of 4415 issues being traded) This last week there were 169 New Highs and 152 New Lows out of 4305 issues being traded for the week. Stealthily the Bulls have been adding to their positions while the Bears have been relaxing. If the trend continues, we should see a Bullish signal in this component very soon with the New Highs exceeding the New Lows nicely.

I've updated my own history through the end of October.

The fall of Kabul seemed to happen almost too easily. However, it seems to have removed some confusion from investors' minds. We may yet see a counter attack that will take this slight shift in confidence away. Like AIM, I don't look to predict the future, but to react appropriately to what's already happened. Some of my stocks are now nearing points where my SELL Limit Orders will fill. This will improve my own disposition! Please stay vigilant yourselves and keep your AIM as good as ever!

REPORT - WEEK OF 11/05/2001: A hectic week at VIEW as we lost a hard drive and have been spending most of the week restoring files and programs. Sorry for the delayed report. As you can see, not much changed. Still three components in the Bullish range and one in Neutral. History indicates that the longer the IW remains at Low Risk, the better the final rally will be. We're now in the 4th week of Low Risk. The NASDAQ was at 1703 when it started and as of today its at 1828 (Friday's close). The DOW was at 9344 and today its showing 9608. So far, so good.

AIM was kind enough to suggest that I do some Selling this week.

As general advice, I would like to remind everyone that it's a heck of a lot easier to copy/back-up your computer data files as well as your software than it is attempt to do it all over again from scratch. I've had reasonably good habits, but didn't realize all the "secret places" some files get stored that I didn't back up. Luck had it that about 90% of the important stuff was recently copied and backed up. I did, however, loose the PIC List histories and will have to reconstruct the AIM accounts to bring them up to date.

Considering how far the market has fallen this year, I don't feel badly about where my account is currently. I'll have an update on the Year To Date in next week's newsletter.

Here's an interesting and timely editorial from my Alma Mater, Hillsdale College. Not the kind of stuff you'd usually hear on the Evening News! Hope you enjoy it.

REPORT - WEEK OF 10/29/2001: The statistics this week again left the Idiot Wave in the Low Risk area. But, as you can see, the Oscillator is now only a minus one. It won't take much of an uptick in the IW data to carry us back to the Average Risk area.

It takes just 24% gain to make Value Line's Best Performers list. The very best is up just 71% this week. On the opposite side, it now takes a 55% Loss to get listed on VL's Worst list and the very worst is off nearly 82% in the last 13 weeks. Looks like Speculation is on the Disabled list! That's good. For way too many years it was out of control. This is the fourth week of this component showing Bullishness.

Only two AIM trades to report this week. I purchased more BMY at $54.60 and sold more GNSS at $48. It seems everything else is stuck in between.

It would appear from the news broadcasts on TV that BinLaden, Inc. continues to benefit from the network's free advertizing for them. I am afraid that I really can't be bothered to watch any more. I've not gained anything from what I've seen and can't understand the willingness of the TV networks to give a multi-national organization such as BinLaden, Inc. free air time. Therefore I've declared for myself a News Holiday. If it doesn't show up in the weekly publications, it's not worth my time to know about it.

I am anticipating that BinLaden, Inc. will continue to try to stay in the forefront of the news as that's where his real "power" is. Until this entity and all its divisions are put out of business I don't see an easy way for the market to rally. Should the criminals escalate their attacks, the markets may go lower. The Idiot Wave indicates that if some resolution or at least a stand-off is reached that we've probably seen the bottom. Under the circumstances, I think my only suggestion is to seek your own comfort level. If you can continue to follow AIM, it would appear that we will start to see some positive results in the future. If you can't even stand to let AIM handle your market risk, then there's always Money Market accounts. I don't recommend that option, but whatever you do it has to be something with which you can live. It also should be a well thought out part of your overall investment business plan. Remember that if you exit the market now, whether profitable or at a loss, there's consequences of those actions. Make sure that you've planned carefully.

David Dreman in his 1977 classic Psychology and the Stock Market derives a formula that states the price of a stock is based upon its actual value, interpretation of information about the stock and the psychological state of the market place.

I and P he states, "can very often be the dominant influence on price. Incorrect interpretation of information and emotional factors can carry price far away from actual worth." Below-average market results are often the result of overlooking these components. "The P of the equation is devilishly tricky, and can often have a substantial and at times overwhelming influence on I. In periods of ebullience or panic, P dominates both I and V. In more normal times, V and I can be more important than P....... V, although appearing almost invisible for long periods of time (1995 through March, 2000?) is eventually the determining factor of stock prices........ Because neither professionals or academics usually place much emphasis on the I and P variables, I believe there is a far greater opportunity to outperform the market than is generally acknowledged........ The cancer of modern investment practice is its absolute obsession with current quarterly and annual earnings, and the downgrading of most other important fundamental evaluation standards."

Finally, Mr. Dreman says, " investors have consistently paid too much for companies that appear to have the best prospects at the moment, and with equal consistency react too negatively to companies considered to have the poorest prospects."
This sounds a lot like AIM selling shares to the one group and buying shares from the other!
".....the (I and P) variables in the favorite companies are repeatedly too high, and are too low in the companies in disfavor........ Because the major barriers (to success) are psychological, the best chance an investor has is to stand apart from popular thinking....... Because (investors) tend to consistantly overreact to events, a mechanical formula designed to moderate such overreactions will work, provided the recent past is not too different from what is to come. .......Years of sweeping changes will occur, and the formula will not function, but such years are very rare. The odds appear very much with the investor who uses the method...."

My choice of a "mechanical formula" is AIM!

REPORT - WEEK OF 10/22/2001: This week we have all four of the Idiot Wave's components showing they have fallen to their Bullish territories. This is great news for all who follow the IW's meanderings. Officially unchanged for the week it is still just inside the Low Risk area of its travels. With three of the four components rising, we're still showing an Oscillator value of minus 2 which means falling risk. However, the rate at which it's now falling has slowed way down from a few weeks ago. In the past these low risk periods have proved to be wonderful times for starting new investments and also for AIM accounts to be accumulating extra shares.

Just one AIM trade to report for last week. I again sold 8% of my remaining inventory in GNSS at $39.70. This made for a very handsome LIFO gain of 335% since about a year ago. This is quite satisfying considering the terrible market conditions for the last 12 months.

How long can we expect this Low Risk Idiot Wave signal to last? I really don't have any way of guessing. Will the market turn and head straight up from here? I don't know. Will the market go down further and create yet new low water marks? Again, I don't know. Usually these Low Risk periods have coincided with market bottoms (See the 11 year IW History). I don't have a comparable historical period with which to compare. We haven't had an active destructive agenda being played out on the world scene during the Idiot Wave's history of 19 years.

People who were guessing at cyclical market bottoms are now not guessing at anything any sooner than 2003 for recovery! That remains to be seen. Is this a cyclical Bear market or is it a secular Bear market? AIM really doesn't care. It was designed around the data from the last great secular Bear market - 1968 to 1981. AIM will take profits as soon as they are available and meet AIM's standards. That money may end up being "recycled" several times before the market trend finally starts to turn upward. This isn't a bad thing since every time AIM recycles cash to buy equities and then sell to recover the cash means a LIFO gain of at least 25% on that transaction. So, if this market bounces along for months or even years near these lows AIM will be doing its best with the Cash Crop available. It will continue to plant and harvest as often as the market prices allow.

Seriously, AIM is best suited to capturing profits in a choppy, flat trending market. If that is what we're in, then AIM will out-perform Buy And Hold substantially and will do so with much less risk over time.

REPORT - WEEK OF 10/15/2001: It doesn't happen very often. It hasn't happened since 1998. When it happens it feels bad at the time and then later feels very good. What is this happening? The Idiot Wave dropping to 30 or below. Just five times previously has this happened since 1982. Each time it has spelled a very good opportunity for investors to be starting new investments or for AIM to be doing serious buying. Will it happen again this time? I certainly hope so. We've been waiting about 18 months from when the NASDAQ and the Idiot Wave peaked for a Low Risk event to occur.

Unofficially we've been at low risk since 09/17/2001 when the Idiot Wave was at 39 with a minus 9 Oscillator giving us a value of 30. It's taken four more weeks for the IW's Moving Averages to settle to give us a 30 reading by itself. The IW Oscillator being a negative 4 keeps it well within the Low Risk area. This should give us extra confidence in making any final AIM purchases. It would be nice to have all four components in harmony on the Low Risk signal, but I'll take what I can get!

In the past the IW has been at Low Risk for as short as one week and as long as 21 weeks. So, it may not mean that the bottom has been reached, but that it's not very far off. Any seeds we plant now should sprout green stuff as the pendulum finishes it swing and starts to reverse.

As if wanting to confirm some of this, here's what AIM's been asking of me recently:

On the Silicon Investor AIM Users bulletin board I'm seeing comments from other AIMers that they have started some minor selling as well. Whether this is just a blip or whether it will be sustained rally remains to be seen. Chances are it will be a choppy ride here as the Good Ship Lichello comes about and takes a new and better tack. We've been beating against the wind for 18 months and it will be good to turn, let the sails out and run with the wind for a while.

REPORT - WEEK OF 10/08/2001: Again this week there are three Bullish components and one Neutral. Two have exchanged places, while the other two remain where they were. I am very glad to see the Speculation component finally wash out to the Bullish part of its range.

In this graph you can see that when there's a high value associated with the Worst Performers and a low value associated with the Best, we've historically had very nice rallies afterwards. However, none of those previous times included on this graph were during a military action by the U.S. Will we now see a rally again? The graph shows that the weak hands have finally let go. Early signs from last week and this week show some strong hands starting to come in to grab up deeply discounted shares. The number of New Lows on the NASDAQ and NYSE are declining. The number of stocks advancing VS declining has favored advancers for two weeks. This is helping to firm up a base from which to launch a new bullish phase. Like newly poured concrete, the longer it sits, the stronger it gets.

I'll be watching the IW Oscillator very closely during the next weeks. We want to see it stay low enough to finally draw the IW into it's own Low Risk territory (now very close). We also want to look for it turning positive as that will signal that the market has started to turn upward. Some of my stocks have started to rise slightly since the end of September. It's not yet been time for me to spend any additional cash as I'm waiting 30 days since my last purchases.

REPORT - WEEK OF 10/01/2001: We've finished the worst quarter on the Dow and the NASDAQ in quite a while. The DOW was down 17% and the NASDAQ down 31% for the last 13 weeks. My account, unfortunately, mirrored the NASDAQ this time around. Here's what the graphs look like for my account through the end of September.

Not the prettiest site in the world, but it's good to see there's a splash of cash left for a last buying spree. With the Idiot Wave hovering just above its Low Risk zone and at the lowest level since our last low risk period in 1998, I'm feeling like the end of the decline is in sight. Only four periods of low risk have occurred since my data started in 1982. Each has been followed by an extremely good market for long term investors. I'm very much looking forward to having the Idiot Wave (IW) confirm a low risk environment again.

Three of the four IW components are now signalling Bullish conditions with the fourth hovering right on the edge. It's very rare that we have all four components in harmony as being either Bullish or Bearish. This is the closest we've been in a long time. Only one stock in Value Line is currently holding my Speculation Index in the Neutral range. Without it we'd have a full blown bullish buy signal from the IW. It takes only a 17% rise in a stock over the last 13 weeks to be in the top 41 stocks of Value Line's universe of 1700 stocks. By contrast, it takes a drop of nearly 64% to get listed as one of the 41 worst stocks! This is truly about as extreme as it gets. Eliminate CKE Restaurants price rise and we're instantly Bullish.

Several market measures improved last week including market breadth. Keep your cash handy as it looks like it's nearing the time to spend that last bit.

REPORT - WEEK OF 09/24/2001: The bad news is the Dow and the NASDAQ fell tremendously during last week's trading. The good news is prices are much more favorable for buying now! The data from last week's trading did do a bit of good for reducing the Idiot Wave's risk rating. It dropped another two points overall and the Oscillator has also stayed low this week. If we subtract the Oscillator from the Idiot Wave, we see that we'd actually have a value of 29. That's an Unofficial Low Risk signal. We have three of the four components in the Bullish end of their territories and the forth closing in quickly. Since the Idiot Wave is a construct of the moving averages of each of the components it takes a while for all the data to filter down to a true Low Risk signal, but we're certainly within very close range. The IW Oscillator is built from the raw data and isn't smoothed with moving averages.

I have been very pleased with the Low Risk signals the Idiot Wave has generated over the years. It's always best when it occurs with all four components in harmony confirming the IW's drop below 30 for Stocks and 20 for Mutual Funds. Again this week I'm putting up all four graphs so you can see just how each component is moving. Note that these graphs are constructs of the Moving Averages for each.

As you can see the trend of these four components is towards lower risk for investing. This is a good sign - as painful as the last two weeks and the last 18 months have been. I've worried that the Idiot Wave was "broken" for a long time as it seemed we should have somehow found our way to a low risk environment long ago. However, it's taken much more time to get this far than almost anyone had expected. The Idiot Wave isn't swayed by opinion, so it serves as a good barometer of what is happening in the market.

For instance, this week's Value Line shows that to make it onto their 41 Best Performing Stocks list, a stock price must have risen by about 25% in 13 weeks. To make the 41 Worst list, takes a drop of more than 62%! The obvious bias is showing stocks in a serious downward spiral for the last 13 weeks. Really folks, this is Good News if you're buying. I know it's not feeling good yet, but the market's carving out a bottom statistically and it's now doing it quickly.

Here's a graph that shows how the Relative Valuation is constructed. Note that in the last week both the Value Line P/E and the 13 week Treasury Rate have dropped quickly. This is doing a great job of trimming the last IW component down to bullish weight.

I bought more JBL, VTSS, CHIR, ADCT and QQQ in various accounts in the last week. Haven't taken time to figure out how much of each. There's still some cash left.

REPORT - WEEK OF 09/17/2001:

All four components of the Idiot Wave went down this last week. Some are down because of the pecularity of having only one day of trading last week. Some are down because of the reasons we had only one day of trading. As the Idiot Wave values drop, so does the risk of being involved in the markets. Use your cash wisely and sparingly.

REPORT - WEEK OF 09/10/2001:

If I use the 1990 invasion of Kuwait as an indicator, we'll see bonds and stocks decline radically over the very short term. Bonds will come back with realization that the U.S. is going to survive. Stocks will be under pressure until the situation is resolved, one way or another. It will be very difficult to attain much in the way of capital gain for a while. My guess is that commercial air traffic will decline dramatically for a while.

I cannot tell you all of my feelings this morning. It would take days. I do know what an act of war looks like. I also know of many "isms." Many religions end in "ism." I don't think an attack on civilian populations should be honored with any word ending in ism. I know that the effort put forth to commit such a crime could have been put to so much better use. I know there's "ENERGY" that's given us all. It's up to us individually and collectively to put that energy to positive use. "Energy" isn't either positive or negative - it's the individual expending it that determines whether it's used productively or distructively. Anyone who uses it for destructive purposes, anyone who associates with such people, cannot be regarded as fully sane or maybe even human. All the "Energy" expended for destructive purposes by groups of sub-humans is completely wasted as it makes for no change at all in the long run. If the same energy was expended in a productive manner, literally millions of people world wide would benefit.

I feel it is a time when we must stand together against those who employ their life force for destruction and personal ambition. It doesn't appear that we have the option of politely accepting distructive alternative views.

REPORT - WEEK OF 09/03/2001: Another week of gloom. You wouldn't guess that this is still summer by the cold bitter weather on Wall Street these days. Today, Friday, the DOW flirted with the April low point of under 9600 for a while. I watched CNBC for 5 minutes during lunch and found out it's the unemployement that's to blame (today).

I'm trying hard to stay with once per month buying on my stocks because my cash reserves are so low. This strategy has been working okay this year. I can't claim any missed opportunities so far. I'll go back to more frequent trading when my cash reserve percent rises to something nearer what the Idiot Wave is requesting. Currently my overall cash reserves are hovering right around 6% of total value. The month of August saw my account return to negative territory for the Year To Date. More on this next week when I have all the reports summarized.

The report was a bit later than usual this week as I waited for the Value Line supplement to arrive. Luckily Keith Felkins saved me with a copy of the information from his subscription. Thanks Keith. Of note this week is the number of New Highs on the NASDAQ is dropping letting my Divergence component sink back towards its Average Risk range. Speculation is moderate with the Best Performer up about 192% while the worst is down 89%. These two pieces of the Speculation index are interesting, but the real story is being told with two other pieces. #41 on each the best and worst list show what it takes to get listed at all. Right now it takes a 34% gain in the last 13 weeks to make the "Best" list while a drop of almost 62% is required to make the Worst. This shows that we're finally unwinding Speculation. If the trend continues, we should get a Bullish reading in the next month. Value Line's P/E must come down before we'll get our Relative Valuation to drop back into the Neutral range. Since I don't anticipate the FED lowering interest rates much more, it will take either a drop in average share price relative to earnings or a growth in earnings to accomplish this. I don't recommend holding one's breath for the earnings growth idea. It will happen, but we might get a bit blue in the face while we wait.

REPORT - WEEK OF 08/27/2001: There's nothing pretty about what's been going on in the market during the last few weeks. I've noted that the most popular subjects on Silicon Investor tend to be the gloom and doom topics. Because of my self-determined schedule I've not bought any new shares of stock since last week's report. Today I did some more house cleaning by selling off all inventory of Sealed Air Corp. (SEE). This was done not because of any change in the fundamentals of the stock, but that it has performed well this year and has done everything I wanted it to do for now. Having the value transferred to my Cash Reserve will give me the ability to do some further buying in some of my out-of-favor tech stocks.

The Idiot Wave components all rose this week pushing the IW up one point. We currently have two bearish readings with a neutral and a bullish rating on the other two. Speculation is still showing up as being moderate. Even so, CKE Restaurants (CKR) is cooking, up 170% in just 13 weeks while Metromedia (MFNX) had a bit too much Fiber in its diet and has been unable to retain much value, down 87% in the same period. Binding up some profits has been hard in this market full of Laxitives! It currently takes a 55% loss to make the Worst Performers list in Value Line where a 40% gain will put a stock on the Best list (Value Line Index Section - Page 33).

As of today's close, the DOW is back under 10,000 and the NASDAQ Composite under 1800. According to Trim Tabs money flow has been positive through last Thursday for the week and the month of August so far. Boy, you'd sure never guess it from the action of the indexes. As bad as the NYSE and NASDAQ look, there were more advances than declines on both indexes last week. The NYSE continues to post many more New 52 Week Highs than lows while it's the opposite for the NASDAQ. Looks like three letter stocks are winning over four letter stocks for now.

It remains important to stay focused on long term goals during such tough market conditions. The P/E contraction continues as investors become tighter and tighter with their stock purchasing dollars. It was hard to be contrary when the bull market was still in force through early 2000. Many people thought about abandoning AIM because it was "foolishly" requesting them to lighten up on their stock holdings during the rise. Well, it's equally hard to be contrary now when there's so much gloom hovering over Wall Street. I have to get my reading glasses out to see the motto on my AIM pin. However, it helps remind me to maintain my contrary attitude and discipline.

This newsletter's readership continues to grow. As you can see below, Canada represents three percent now up from 1% at the beginning of 2001. Fully 11% of the total readership now is represented by non U.S. "hits" on the site. Thank you all for coming here to learn about Mr. Lichello's AIM. I hope you all profit from its use.

REPORT - WEEK OF 08/20/2001: Last week I reported that a few purchases were made. Many of my stocks had been hovering right near where AIM wanted some new shares added. I've been limiting AIM's feedings to once per month on most of the holdings because my Cash Reserve position is so low. Well, about a month has gone by since the last feeding and AIM was getting ornery from hunger pains.

The damage being done to the markets finally did show up in my Speculation Index with a drop to the low end of the Neutral range. I expect it to stay there or drop further in the coming week or so. The Divergence index is still indicating that NASDAQ investors don't know what to do. It is interesting to note that there's much less confusion with NYSE investors. While the NASDAQ has been posting simultaneously lots of new highs and lows, the NYSE is showing many more new highs than lows. It would appear that dollars leaving the NASDAQ have been flowing into the NYSE. "Flight to safety?" Maybe or just part of the nouveau value investing trend. Well, the pendulum always swings both ways.

I plan on keeping to the tactic of infrequent purchases for efficient use of the Cash Reserve for the foreseeable future. Should VIEW's cash rise back up to more normal levels I'll allow the Purchasing Department more activity. I don't know how long that might take. In the mean time it just means I have more time to do other things because my Buying is limited to monthly activity. I plan on selling any time AIM asks me should any of my stocks finally quit falling in price. This year I've felt like I'm in the Recycling Business. I keep recycling the same shares over and over. This is the third buy cycle this year on several stocks. Each sell cycle has been brief but rewarding. Gosh, can you imagine having four round trips per year per stock? That makes for some good and profitable activity while we wait for Mr. Greenspan's latest interest rate cuts to take hold.

REPORT - WEEK OF 08/13/2001: This week wasn't pretty again on Wall Street. Outflows of money from mutual funds continued last week and is almost becoming a trend in itself. This makes it difficult for the markets to put together any form of rally. Press articles abound with negative twists on almost any and every stock. Posting on Silicon Investor's threads is way off the pace of normal. Even our AIM bulletin board is getting quiet.

A while ago I sold out of my Devon Energy shares (DVN). This week I used the proceeds to buy more shares of my Vanguard Sp. Energy fund (VGENX). The money is staying in the same general sector but is more diversified now. That fund was nearing where AIM was going to think about doing some buying, so I took it as a good time to add to the overall position. My Biopure shares (BPUR) received some negative press which drove its price down quite a bit. AIM responded by accumulating some extra shares at $17.10. Also, my Stake Tech. (STKL) shares dropped to $1.50 where I added about 5% more to my holding. Today (Friday) my Vitesse (VTSS) shares also took a beating to where AIM will be interested in accumulating more shares. I haven't yet executed any order on VTSS as I arrived at the office after the markets closed today.

I've updated all the graphs of the Idiot Wave's components for all to review. You'll see that three of the components have been showing rising risk for several weeks. Only one component is currently in the Bullish camp - Zeal. The recent profiles of the other graphs isn't anything that is very encouraging at this point. What's odd is that normally as the indexes have risen in the past usually the Idiot Wave has risen in harmony. This time the market is falling while the IW risk level has been rising. This is somewhat uncharted territory for it.

In 1999 and 2000 as interest rates were rising, the market seemed content to ignore the FED rate hikes. After decades of following the FED's every twitch investors were believing that interest rates no longer mattered. Now, after over 8 months of FED rate cuts it appears these same investors and the market as a whole is ignoring the tremendous drop in the FED funds rate. Earnings have been falling faster than stock prices which has pushed the broad P/E ratio of Value Line's 1700 stocks up above 18. This plus the current 13 week interest rate puts our Relative Valuation level into its Bearish territory. Bond funds are swelling with money being removed from stock funds. Even money market funds and bank savings deposits are gaining dollars while interest on these safe havens drops. I guess if we're going to be "buying from the scared" this might be the time to do so. As fellow AIM investor, Steve Grabczyk, put it, "If we sell to the greedy and buy from the scared, does that mean we're stealing from the capitulated?" I guess so! I know most AIMers are working with very thin cash reserves at the moment, so please use the remaining purchasing power to your best advantage. Maybe when Mr. Greenspan makes his next rate cut investors will finally start to realize that the economy can still recover. That realization should help the markets.

REPORT - WEEK OF 08/06/2001: The dance music certainly seems as though it's changed from the decade of the Nineties. Back then we didn't seem to need any fancy footwork - it was three steps forward and one step back, repeat. We all started at one end of the room and nobody worried about what was going to happen when we all got to the other end. In early 2000 we all piled up with no place to go and realized we'd gone too far. The dance then switched all the way around to three steps back and one forward. Well, the beat has now changed again and the same steps we used in the Nineties or since March of 2000 don't seem to get us anywhere. Just as it was hard not to make money during the last decade, it has been difficult as a long term investor to make money in the last 16 months. We've had to adjust our step to the new beat. As Bob Norman said, we're being waltzed around. One step forward, one to the side, one back and another to the side. Actually if you think about this, it's just the kind of market for which AIM was built. It's going to be harder work with stock and sector selection being very important while using AIM's volatility capture feature to build our positions as the market continues its waltz.

Another problem with such a leaderless market is that investors, even AIMers become disenchanted with their progress. Please resist the urge to switch to some other system just as AIM's coming into its own. If you as an AIM investor are feeling frustrated, imagine what the Short Term Trader must be feeling. The market has a slope of zero right now and that's a hard one to say "The Trend Is Your Friend." Should the market continue to be in this range for the rest of the year, I know my total inventory turnover will be less than other years. But at least what will have turned over will have done so profitably.

My "Speculation" index (Veale's Best/Worst index) as predicted went way to the bearish side 13 weeks after the April market lows. It's now almost back to the neutral range. The week of July 17th data showed the Best Performer in Value Line up 305% in the 13 weeks from its April low. This week we see Pep Boys up 186% as the Best. The index should continue to moderate in the next few weeks.

The Price/Earnings ratio for Value Line has expanded from 14.4 at the beginning of 2001 to its current value of 17.9. We all know this wasn't because of prices rising while earnings stayed flat! In fact it was the shrinking of the earnings at a faster rate than the prices were dropping that caused the bloating of the Value Line P/E ratio. Looking only at the P/E ratio would make one think that there's been an increase in risk. However, if we also look at interest rates at the same times we see that things really haven't changed towards the worse as much as we thought. Back on January 1st the 13 week Treasury rate was 5.43% and now it's 3.56%. If we combine them, then back in January it added up to 19.83 where now it adds up to 21.46. In January it was at the lower end of the Neutral range and now it's at the upper end. As much noise about the FED policy that's been made, it appears the FED's kept the P/E + Interest value inside the Neutral range during a very difficult time in the market. I doubt if the FED's going to lower much more. The effect of dropping interest rates should start to help earnings thus putting a lid on the P/E ratio over the next quarter. We may yet "earn" our way out of the market slide.

REPORT - WEEK OF 07/30/2001: I have to say that it's been hard work to find much good news being reported by the financial press recently. So, I guess I'll have to just create some for myself.

Considering how lousy the market has been, I think this is good news! At least for the last week none of my stocks have dropped enough in price to trigger any more AIM purchases. This doesn't mean that they've necessarily gone up in price, but have at least temporarily stopped dropping! So, the good news is that maybe my fingers can heal from trying to catch all those falling knives last week.

Overall, July turned out to be not much of a month when viewed in the context of the rest of the year so far.

Value Line's "Worst Performers (last 13 weeks) list shows again this week that 11 of the 41 stocks are from the telecom. and telecom. equipment sector of the market. Classic Over-Sold conditions like this don't last forever, so if you have interest in this business sector, it's time to do your homework, find those companies that will prosper the most from any coming rally and start your AIM investments. Starting them with 48% Cash Reserve as suggested by the Idiot Wave may seem excessive for the rather low levels of these stocks, but we may not be through with the market uglies! Using "vealies" in the next rally to keep the cash reserve under control will enhance your performance even when starting at such high cash levels.

There are other areas of the world's economy that will do just fine in the future. If we take some time to think about what life might be like ten years from now we might see where some of the potential is. Then, by carefully screening of investment candidates in those areas of the economy we feel have long term potential we will have a great starting place for our AIM accounts. As we know from experience, it won't be a straight line price increase on any of our picks, and that's why we use AIM. It acts as the shock absorber for our investments. It takes the good and bad and processes it in a way that is profitable. AIM will slowly build a position in the formative years as prices bounce around and speculators come and go. All the while we wait for the long term potential to be realized. Rewards can be impressive when viewed from a 10 year vantage point.

I've updated all the graphs and information on my PIC List as of the end of July. As of that time AIM was showing a gain so far of 4.4% where Mr. Buynhold would be showing a gain of 2.4%. This means that AIM, in this very short time frame has beaten buy and hold and done so with significantly less risk. Mr. Buynhold is 100% at risk where AIM is currently only about 68% at risk. Many of these stocks still seem to be relative "good buys" compared to a year ago.

The Usage Graph for July shows that our readership continues to expand world wide. Canada, Germany, The Netherlands and Singapore each represent more than one percent of our readers. An additional 4% of the readership is from other nations. Welcome to you all. I hope this site and Mr. Lichello's prudent investment model help you with your local markets as well as the world markets.

REPORT - WEEK OF 07/23/2001: As prices have been declining in recent weeks they have passed through my Hold Zones from the Sell side to the Buy side. All this time AIM has waited patiently for the declines to be large enough to generate real interest. A few stocks had fallen far enough to generate AIM Buy signals sooner but because not enough time had passed by since the last purchases, I waited for a full month or more to go by. Well, here's the list of orders as of today:

I've been managing a very conservative account for a while for a friend. The majority of the stocks purchased this week were in that account. Even these low BETA stocks have cycled to very low prices and tripped AIM trades. It's important to check on the fundamentals of our stocks if we see significant declines and verify that the reasons we own them are still justified.

This week in Value Line at least 11 of 41 stocks listed as the Worst Performers (last 13 weeks) are from the Telecommunications and Telecom. Equipment sector. As mentioned here before, any time we get that type of concentration of stocks from just one sector, it cries out "OVERSOLD!" Now, not every one of them is a bargain and not every one that might be a good company is listed, but we certainly know what sector to study to find a new "favorite." I can say with certainty that the telecommunications equipment sector isn't planning on going out of business entirely. We can expect stocks in these sectors to rebound nicely over the next 6 months.

Last week Molex (MOLX) was added to the PIC list. I used the closing price on Monday, July 16th ($34.53) as the beginning price for the new listing and 46% Cash Reserve taken from the Idiot Wave. PIC has not exactly set the world on fire yet, but it is still showing a $589 profit on its $180,000 commitment since the beginning of the year. Still, break-even is better than most of the indexes for the year.

We're starting to see my Speculation component unwind from its knee-jerk reaction to the April lows. With the market prices off recently and moving the point of reference further into the April-May rally this figure should drop back towards the Neutral range over the next few weeks. It would appear that money is still searching for the latest "winner" in the game of Stock Market Musical Chairs.

REPORT - WEEK OF 07/16/2001: A "tradeless week" at VIEW this last week.
Neither a Buyer nor a Seller Be...... was AIM's suggested activity. Neither the DOW or the NASDAQ did anything too spectacular but there were dollars to be made by the brokers as trading was still going on while investors attempted to devine which market sector and stock might go up or down next. It's nice to see just how "laid back" AIM is during such turmoil.

Some early noises started being made by some of the CNBC guests suggesting that the FED's rate cutting starting about a half a year ago is starting to possibly show some benefit in selected areas. At the same time there's a different kind of noise filtering through which suggests the whole world is now in recession because of the US slow-down. Who's right? Time and AIM will tell.

It's just that sort of confusion that shows up in my Divergence component (NASDAQ Hi/Low Logic Index). 265 new Highs and 270 new 52 week lows registered in the same week. Advances and declines on both the NYSE and the NASDAQ were a wash as well. I've mentioned several times in recent weeks that we'd see a balloon in the Speculation component around the first part of July. The reason is the April lows. Just a modest rebound from April would be a sizable percent gain now. Note that all 41 stocks on Value Line's Best Performers list are up over 100%! The Best Performer, Pixelworks (PXLW), is up over 300% since early April. Certainly AIM would have had investors selling off healthy portions of their portfolios with such a rise! I own and AIM Genesis Microchip (GNSS) which manufactures similar parts and it's up nicely as well. Here's how my AIM is on Genesis Microchip.

Since the sum of the Idiot Wave and its Oscillator indicates where the IW would go if all things remained the same for the next several weeks, we see that there's some concern. Two components Bearish, one Bullish and one Neutral. We're certainly keeping a close eye on the data. Market confusion means we should exercise caution. I'm keeping the resistance to buying high while my resistance to selling is low with the SAFE settings I've chosen. These have now been in place for more than 15 months.

REPORT - WEEK OF 07/09/2001: Other than a 7% addition to my QQQ position at $40.94 and the sale of 8% of my remaining GNSS position at $37.25, all's been quiet at the Warehouse in the last week. No Fireworks for VIEW!

The last couple of weeks have been a bit spooky. Net cash "outflow" from US mutual funds has put a damper on the market averages. Hard to drive prices up when redemptions out strip new deposits with the mutual funds. In the last week there's suddenly lots of analyst "upgrades" on tech stocks and other areas. This is sort of suspicious. I happen to agree that buying stocks when they are out of favor is a good thing, but am always wary of what the motives of the analysts are.

The PIC list ended June with a slight decline for the Buy & Hold investor and about break-even for the AIM investor. The new addition of TLAB at $19.38 hurt results immediately by falling to nearer $15/share. AIM has been trading wisely in this hypothetical account. AIM is giving this portfolio a nice head start in a turbulent market with very little direction. Of course AIM was designed for just such a market, not for year after year of Bull market.

It will get more and more difficult to maintain your patience and composure the longer the market is stuck in a range. Please do your best to reinforce why you became an AIM investor in the first place. Concentrate not on how far your portfolio has fallen from its peak, but on how far it's come in the last three to five years with AIM's assistance. All the magazines, papers and television want us to concentrate on the short term. AIM doesn't think in those time frames. We still want to be involved in what will be the best industry sectors for the next 5 to 10 years. If we can buy into those sectors when prices and valuations are near their low points, we'll do very well in the future. AIM will help along the way if it doesn't happen instantly.

REPORT - WEEK OF 06/25/2001:

A quick report to tell you that the Idiot Wave is rising slightly again this week. One Neutral, one Bullish and two Bearish components make up the list. I've indicated that the Speculation component can be discounted right now because it's reflecting the terrible deep correction in the NASDAQ and DOW right around the beginning of April. Since this component is based upon the Value Line Best and Worst performers over the last 13 weeks, it's not surprising to see this index showing a rapid rise in stock prices in the last quarter - 13 weeks since the lows occurred.

Tellabs (TLAB) was added to the AIM PIC list this week as Value Line dropped its Timeliness rating to #5 for this "Highest Growth Stocks" listed equity. More on this at the AIM PIC website on Silicon Investor.

My taxable account shifted its Equity/Cash ratio a bit more in June, but the total value slipped just slightly.

Overall, on a comparitive basis, I'm still ahead of the NASDAQ Composite this month, but slipped from about 118% to 116% of the index. I'm hoping to stay a bit in the lead while the market recovers.

Robert Gammon has kindly been reproducing tapes of that meeting and making them available for a price of $10 ea. including shipping and handling. Several AIM users gave presentations. If you are interested in this 5:50 Hr. long video, please send Mr. Gammon an email. It's rare to have this much information available at such a reasonable price. Note that last year's video, AIM 2000, is also still available at the same price.