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(1992, ISBN 0-451-17453-4) (1997, ISBN 0-07-039141-6) (1997, ISBN 1-56838-119-0) (1976, ISBN 0-79310-148-4) (1977, ISBN 0-8144-5429-1) (1971, ISBN 0-0704-9772-9) |
I guess you could call this entire web site and all of its links a review of Mr. Lichello's work on creating the AIM algorithm. However, it deserves a more concise review than that. First, understand that the AIM algorithm is a sound, contrarian model for investment risk management. Those who follow AIM will constantly be reminded by short term traders that what they do is exactly the opposite of what momentum investors do. That's the good news! No more playing Musical Chairs with the Momentum Crowd!
AIM performs a mathematical balancing act with equity value on one side and cash reserve on the other. The cash reserve represents raw buying power for the investor. It also acts as a nice cushion when markets are acting peculiarly. AIM limits risk exposure as equity prices rise by side-lining some of the profits as cash. Then, when prices are depressed, AIM will shell out some of the cash to repurchase shares.
AIM is a RETROSPECTIVE method of portfolio management. It is not PREDICTIVE. It's 20/20 Hindsight is far superior to a 50/50 guess about the future. This is what makes it work. Why guess about the future when you can be certain of the recent past?
Mr. Lichello's book was first published in 1977. The long tabular data will seem a bit tedious to most readers. Today, Mr. Lichello probably would have used graphs to display histories of how AIM works. I suggest that you look at the Stock and Fund Histories to see how easily AIM is understood in pictoral form.
A quick skimming of the book as a first reading will give you a feel for AIM's method. I'd then suggest that you go back and re-read Chapter 6 and the Question and Answer chapters. If you are still accumulating your nestegg, you should also read the Twinvest chaper again. For those who are members of Investment Clubs, I also highly recommend Twinvest. It's Dollar Cost Averaging with a Brain!
Don't let the One Size Fits All attitude of the book put you off. AIM's much more flexible than it appears in the book. Here at the web site and on our Bulletin Boards, you will see just how many ways we have each adapted AIM to our own purposes and life circumstances.
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Mr. Lundell says, "Today's financial markets are the last bastion of unabashed conflict.....
To participate, you must be your own general, devising a strategy, gathering information, executing your plan, and adapting to the situation."
How can we use AIM and the Idiot Wave for strategic and tactical planning to carry out Mr. Lundell’s requirements to participate in the Equity Markets?
Be your own general
You are in charge. You are responsible. When you win, you benefit. When you lose, only you are to blame.
a) Broad trends persist. Discover them. They will survive boom and bust.
b) Don't contemplate engaging in war while beholden to another. They could become your ruler!
To me this means "Stay away from Margin Buying unless you are certain of victory."
c) Establish and maintain a "Baseline of Survival" for your command.
This is the "income" side of my overall portfolio.
d) Know that reality is governed by Darwinism; Long Term Survival belongs to the fittest.
Devise a Strategy
Our strategy is to sell inventory into market strength and to buy into market weakness. Robert Lichello's AIM algorithm provides us with a systematic approach to follow that employs this strategy.
a) Sell quality merchandise to all those willing to pay.
b) Buy quality merchandise when the price offers reasonable hope to resell at a profit.
c) Let the allocation of resources and inventory be governed by the course of the market and AIM's guidance.
Gathering information
Today there is no excuse for not being informed.
a) Differentiate between information VOLUME and QUALITY.
b) Differentiate between FACTS and OPINION.
c) Find good sources of judgement where you cannot act as judge.
d) Information is trusted only when provided by those proved trustworthy.
Adapting to the Situation at Hand
The Idiot Wave measures general U.S. Market Risk (and may be sensitive to world market risk) from low to average to high. This helps you gauge the situation by:
a) Gauging your initial cash reserve requirements on new investments
b) Gauging your on-going cash reserve requirements on established investments
c) Judging whether to establish a bias for accumulation or distribution
d) Possibly starting no new AIM accounts when the Idiot Wave is showing High Risk
e) Possibly ignoring all AIM Buy Signals during IW High Risk events.
f) Following all AIM buy and sell signals during IW Average Risk events
g) Possibly ignoring all AIM Sell signals during IW Low Risk events
h) Re-assessing your "Baseline For Survival" at times when AIM has your account heavily in Cash
i) Always attempting to beat measured inflation by 5 basis points minimum after all taxes and living expenses are paid. If you do this consistently, in good and bad markets, you will be winning long term
j) Using "vealies" when your positions are cash rich relative to the IW. Limiting supply helps to keep Momentum player’s Demand high.
Execute your Plan
Set the plan in motion; know that it takes time for realization. Follow the plan without hesitation allowing the goals to be realized. The strategy is sound so execution is all that is required.
a) Buy when the plan says
b) Sell when the plan says
c) Be very patient when no buy or sell signals are being generated
Reading Mr. Lundell's interpretation of Sun Tzu's work will help you focus on your own plan. It will arm you with knowledge of what others not using AIM are doing in the market. Understanding Short Term Trader's strategy and tactics is like having a spy in the enemy's camp. AIM users can profit by knowing just how these people think and act. AIM acts as almost a mirror image of what goes on in a trader's mind.
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Her unique perspective on the "American Dream" makes this book unusually insightful. If we feel uncomfortable with another person's wealth, think how we make them feel! Ms. O'Neill takes a close look at the personality of workaholics and other compulsive behaviors and how they affect spouses, offspring, and coworkers. She then examines how the "success" of the workaholic often misleads others to think that money solves all problems and brings happiness.
You will be surprised by your own thoughts regarding the wealthy and their descendents. I hope you will be equally surprised by the envy, hate and manipulation by those who choose to get close to wealthy people. The problems related to wealth she names "Affluenza". Once you understand it, you'll begin to see signs of it in many unexpected places. "Affluenza" affects rich, middle class and poor, each in its own way.
This is one of two books on psychology that I recommend the investor read. It is important to know that much of investors' success is related to understanding the market's psychology. This includes understanding the individual participants' minds as well.
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If you ever had a question about almost any stock market indicator, measure or index, Mr. Fosback will provide an answer. Not only does he give you the definition of the item in question, he then will give you his opinion of its usefullness. Going one step further, he will many times also give you an improved version as well. Readers of his "Mutual Fund Forcaster" and other newsletters will find in depth analysis of Mr. Fosback's favorite measures of market health.
This book is like a short course in understanding the stockmarket. If you read it you will
probably know more than most professors! Consider this the text book to Investing 201!
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To quote one of our regular AIMers, Bruce Bowman, "To be a good investor, first you have to
Know Thyself!" Here's the other book on Psychology that I feel is a necessary part of developing a proper Contrarian attitude! From Tulips to Turtle Bay, from Merchant Ships to Market Timers Mr. Dreman tells the tales of market speculation and zealous investing.
Reading it doesn't require a degree in Psychology. The book will help you understand just
what the true meaning of Fear and Greed are, relative to investing. From that
basis Mr. Dreman then gives some suggestions on value and contrarian investing. All of this
will look somewhat familiar to the AIM investor that's been through a couple of market cycles.
A couple of mutual funds now carry the Dreman name. This adds a bit of weight to how important contrary investing really is. It is very easy to lose sight of reality when the market is either in a strong bull or bear phase. Having benchmarks along the way helps to keep our
exuberance rational! This book is as important to read as any on investing.
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In spite of the the rather glamorous title, the book is actually about Buy and Hold investing. Yes, it is true that you could have made a million dollars by buying any of about 350 stocks he mentions if you had bought $10,000 worth and just sat back and watched it grow over time! Doesn't sound that exciting, does it? However, I hope you didn't miss the point that he mentions AT LEAST 350 opportunities to have done this! Most of the companies' names will be quite familiar to most readers.
With the histories of many of these companies available, Mr. Phelps goes back in time to examine what it was about these companies that made their potential as great as it was. How can one begin to see what it takes for a company to do well? Well enough to drive its stock from $1.00 to $100.00 over a period of time? This is the heart of Mr. Phelps' book. He comes up with common characteristics that show up in many of the stocks he uses as examples.
Now, what about his strategy of stock ownership? He says that the best way to preserve the wealth you accumulate from investing is to NOT SELL your stocks! Uncle Sam always wants a piece of the pie when you decide to cut it! Mr. Phelps says that no matter how long it takes, it's better to pass on stocks to your heirs than it is to sell them too soon!!
"The reason," he says, "that more people don't make 10,000% on their money is that they don't set their goals high enough!" He says that to sell a stock sooner than that is an admission that you have failed at this goal and haven't done your homework properly! Move over Mr. Lynch! Who wants a Ten Bagger when we can shoot for a 100 Bagger!
Certainly in these times of trading stocks as frequently as heartbeats, his style seems almost
radical. After all, who interviews the guy that just buys stocks and never sells? CNBC will just ignore you! More important to AIM investors, how would Mr. Lichello get on with Mr. Phelps? Near the end of Mr. Phelps' book, a clue comes out as to the possibility of a great friendship. Mr. Phelps shows in one example an investor could have seen the possibilities of a 10,000% return several times during a 40 year span of time! This same stock returned $100 for every $1 invested if held for 40 years, 36 years, 28 years, 20 years and also just 12 years! In other words, the stock price bounced around a lot over the 40 year period. This offered the investor who was shrewd enough to have perceived the possibilities several chances to have caught that 10,000% ride! Well, if AIM had been there to assist that investor 40 years ago, just think how many shares he would have accumulated as the price cycled! The AIM investor probably would have owned a small mountain of shares by the time it finally made its final run!
The reason that I've included this book in my collection of readings that complement AIM is that Mr. Phelps' selection process for stocks is very beneficial to AIM users. We work hard to find stocks that will give superior returns over time. We are willing to risk our money based upon our perception of the company's future and because we know that we have AIM to temper our risk. Mr. Phelps didn't have AIM on his side, but he did have very good selection skills developed. These same skills benefit AIM investors.
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(title gives direct link to Fraser Books)
Of all the books on investing that I've read over the years, this one was at once, the most pleasurable and most challanging to my own beliefs. Mr. Phelps spent over 40 years in and around Wall Street and the world of investing. His activities included being a private investor, columnist, analyst, author and financial advisor. His career spanned from just before the Crash of 1929 to the 70's.
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