Core Position Trading Buy Low Sell High Stock Trading ETF Trading | Automatic Investment Management (AIM) Basics

This is a summary of Robert Lichello's "Automatic Investment Management" (AIM) based on his How to Make $1,000,000 in the Stock Market Automatically!   Don't let the "hokey" title put you off.  The book was first published in 1977 and is now in its Fourth Revised Edition (December 2001).  It's available on Amazon.com for about $8.00.  [2002-05-29]

Good News -- Lichello's book was unavailable for awhile, but a Fourth Revised Edition is now available.   [2002-05-29].

Refer to the Lichello book and to other pages on this web site for more details about the rationale and operations of the AIM method.

Order the AIM "Bible" now from Amazon

An AIM Account (AC) is not your brokerage account.  An AC is for your own personal planning, tracking, bookkeeping, etc., records.  You can set up as many ACs as you want.  Each AC is comprised of the holdings of an item -- one stock, one mutual fund, or one exchange traded fund (ETF) -- and and an accompanying Cash Reserve (CR) associated with the item.

You need an appropriate means of making AC transactions, for getting cash into and out of the items (stocks, mutual funds, and ETFs) in your various ACs on short notice.  This usually means having a brokerage account so you can place limit GTC Buy and Sell orders for the stocks or ETFs, and day end orders for regular mutual funds.

Each AIM Account (AC) is initially set up -- established -- by using a portion of the total capital for that AC to make an initial purchase of the item.  The balance of the capital for that AC is kept as the CR.  This CR is used to fund future purchases of the item, adding to the previous quantity of the item, and as a repository for proceeds of sales of some of the item.

AIM, as is the case with other Core Position Trading methods, and in contrast to typical trading methods, is not an all or nothing plunge.  You do not try to guess a price at which to buy and then plunge with all your cash, and then try to guess a price at which to sell and then "bail out" (if you have a loss) or "cash in" (if you have a profit).

Lichello's original initial AC allocation percentages, set back in the late 1970s, were 50-50.  In a rising market, an AC account typically and rapidly becomes cash-heavy due to several incremental sales at higher and higher prices, so Lichello later modified that to put something like 70% initially into the item with just a 30% initial Cash Reserve (CR).  Then, after the bull changed to bear, other AIM users reversed that allocation to make it 30% initially for the item, keeping 70% for the CR.  To repeat, these allocations are for the initial purchase only.  This original allocation is one which you can modify from the basic 50-50, depending on your estimate of market conditions of the CPT item.  For example, in the spring of 2001, you might have set a 30% initial position in, say, the QQQ, leaving a 70% Cash Reserve (CR).  This is because you might have thought the stock market could fall substantially due to a perceived serious overvaluation and you would need the additional funds from the CR to buy more at a lower price.  Conversely, in the spring of 2001, you might have set a 70% initial position in a precious metals mining mutual fund, leaving a 30% Cash Reserve (CR), since precious metals were at major lows.  But, if in doubt, 50-50 is the default initial allocation.

You must realize -- this is vitally important -- that the AIM method requires a CR (or at least the ability to pull in from some other source the required amount of cash) to fund the additional incremental purchases that AIM will calculate for you to make if the price of your item declines.  Remember, the object is to "Buy Low, Sell High".  You need sufficient readily available cash to Buy Low.  If you are not both able and willing to make the additional purchases at a lower price that AIM calculates for you, you may as well go back to the Tarot cards or Las Vegas; AIM will do you no good.

Buying low and selling high means, surprise, actually buying low, to which most people seemingly have an aversion. It also means actually selling high, to which most people also seemingly have an aversion.  Most would would rather chase a stock, or tulips, buying high with the plan of selling even higher.  However, they keep waiting for some undefined "higher" and then when the price turns around, the average person rides it back down, frequently selling for a lower price than at what bought.  "Buy High, Sell Low" is what the great majority do.  AIM practitioners are on the other side of that, "Buying Low, Selling High".

The AIM method lets your Core Position Trading item tell you what to do, whether to buy, sell, or hold; and if a Buy or a Sell is indicated, how much to buy or sell at various prices.

If the price of your item has gone up sufficiently, AIM will tell you when you have a Sell transaction.  If the price of your item has gone down sufficiently, AIM will tell you when you have a Buy transaction. 

Now we get into the calculations.  No commissions are assumed.  Lichello did not consider commissions, since he was assuming they would be small compared to the amounts traded.

The major regulator of what your transactions will be is called the "Portfolio Control" (PoCo).  PoCo is a running number, a cumulative record relating to your item purchases.  The initial value of PoCo is the dollar amount of your initial AIM Account (AC) setup purchase.  This does not include the Cash Reserve (CR).  For those that may already have an item that they want to convert to an AC, many just sell enough of it to establish the CR.

Initial Values Example (Using an Initial Allocation of 60% to the item, and 40% to the CR)

      Account Total             $5000
      Account Item Qty Bought
        600 shares @ $5         $3000
      Cash Reserve (CR)         $2000
      Portfolio Control (PoCo)  $3000

Some time later, after a move in the price, you value your item (e.g., a stock) holdings.  This is called the "Stock Value" (SV) -- regardless of whether the item is actually a stock or not.

      Price = $6.00
      SV = QtyHeld * Price
         = 600 * $6.00
         = $3600

The next concept is what Lichello calls the "SAFE".  SAFE, along with the minimum transaction dollar amount you set, establishes a "no transaction" price zone.  This prevents transactions on small price moves.  Trading small amounts on small price moves is not profitable with AIM.  AIM is not suited for day-trading or scalping since AIM requires larger price moves than you usually will see intraday.

SAFE is a percentage of the "Stock Value" (SV), generally 10%.  SV is the number of shares currently held in the "AIM Account" (AC) times the price.  You use SAFE in the calculations for both potential Buys and Sells.  Many AIM practitioners adjust the SAFE percentage to different values for Buys and/or Sells, depending on the volatility of the type of item, and "market conditions".  But, adjusting the SAFE departs from "automatic", so if in doubt, 10% for both Buys and Sells is the default.

To see if there is a potential transaction, you take the difference between SV and PoCo.  If the price has increased, use SV - PoCo; if the price has decreased, use PoCo - SV.  The result is called the "Buy or Sell Advice" (BSA).  Then, you subtract SAFE from that result.  If that result -- the "Potential Market Order" (PMO) is still positive, you then check for the minimum transaction amounts (dollar and quantity) you have set up to determine if you can actually make a transaction.

Examples of no transactions due to SAFE:

      Price Increase              Price Decrease
      not sufficient              not sufficient
      for a Sell                  for a Buy
      -------------------         -------------------
      Price = $5.25               Price = $4.75
      PoCo  = $3000               PoCo  = $3000

      SV = Qty * Price            SV = Qty * Price
         = 600 * $5.25 = $3150       = 600 * $4.75 = $2850

      SAFE = .1 * SV              SAFE = .1 * SV
           = .1 * $3150                = .1 * $2850
           = $315                      = $285

      BSA = SV - PoCo             BSA = PoCo - SV
          = $3150 - $3000             = $3000 - $2850
          = $150                      = $150

      PMO = BSA - SAFE            PMO = BSA - SAFE
          = $150 - $315               = $150 - $285
          = -$165                     = -$135
          Since negative,             Since negative,
          No transaction              No transaction

Examples of no transactions due to minimum dollar transaction not satisfied:

      Price Increase              Price Decrease
      not sufficient              not sufficient
      for a Sell                  for a Buy
      -------------------         -------------------
      Min Dollar Trans = $100     Min Dollar Trans = $100
      Price = $5.70               Price = $4.50
      PoCo  = $3000               PoCo  = $3000

      SV = Qty * Price            SV = Qty * Price
         = 600 * $5.70 = $3420       = 600 * $4.50 = $2700

      SAFE = .1 * SV              SAFE = .1 * SV
           = .1 * $3420                = .1 * $2700
           = $342                      = $270

      BSA = SV - PoCo             BSA = PoCo - SV
          = $3420 - $3000             = $3000 - $2700
          = $420                      = $300

      PMO = BSA - SAFE            PMO = BSA - SAFE
          = $420 - $342               = $300 - $270
          = $78                       = $30
          Positive, but not           Positive, but not
          enough for a                enough for a
          transaction                 transaction

Examples of transactions that can be made:

      Price Increase              Price Decrease
      sufficient for a Sell       sufficient for a Buy
      -------------------         -------------------
      Min Dollar Trans = $100     Min Dollar Trans = $100
      Price = $5.75               Price = $4.25
      PoCo = $3000                PoCo = $3000

      SV = Qty * Price            SV = Qty * Price
         = 600 * $5.75 = $3450       = 600 * $4.25 = $2550

      SAFE = .1 * SV              SAFE = .1 * SV
           = .1 * $3450                = .1 * $2550
           = $345                      = $255

      BSA = SV - PoCo             BSA = PoCo - SV
          = $3450 - $3000             = $3000 - $2550
          = $450                      = $450

      PMO = BSA - SAFE            PMO = BSA - SAFE
          = $450 - $345               = $450 - $255
          = $105                      = $195

      Transaction Qty =           Transaction Qty =
        PMO/Price                   PMO/Price
        = $105/$5.75                = $195/$4.25
        = 18.26 shares (sell)       = 45.88 shares (buy)
        Round to 18 shares          Round to 46 shares

Assuming you make an indicated transaction, you adjust the Qty by the Transaction Qty, and you adjust the PoCo only if it was a Buy.  For Buys, you increase the PoCo by one-half the amount of the dollar transaction.  For Sells, you don't make any PoCo adjustment.  You then use the new Qty and PoCo values determined after a transaction in the calculations for the next potential transactions.

For the transaction examples, above, that can be made, the adjustments are as follows:

      Price Increase              Price Decrease
      resulting in a Sell         resulting in a Buy
      -------------------         -------------------
      New Qty = Old Qty           New Qty = Old Qty
        - Transaction Qty           + Transaction Qty
        = 600 - 18                  = 600 + 46
        = 582 shares                = 646 shares

                                  Dollar Transaction =
                                    Transaction Qty * Price
                                     = 46 * $4.25
                                     = $195.50 (not $195)

      New PoCo = Old PoCo         New PoCo =
                                    Old PoCo + (.5 * Dollar Transaction)
                                     = $3000 + (.5 * $195.50)
                                     = $3097.75

You may have heard about how the "big boys" manipulate the markets.  They reputedly force prices down, so they can buy on the dips.  Then they reputedly force prices back up, so they can then sell on the rallies.  Regardless of whether they do manipulate the markets like that, you can act as if it is true that they do, and follow their example.  Buy on the dips; sell on the rallies.  Buy Low, Sell High.  Now, the questions to answer are, how much of your Core Position Trading item do you buy at what price(s) on a dip, and how much do you sell at what price(s) on a rally?  Lichello's AIM method answers those questions.  With AIM, YOU STILL HAVE A POSITION if/when the price of your item goes "to the moon".  But the price of your item doesn't need to go "to the moon"; as long as prices thrash around, at whatever general level, you can eventually make out.  (Keep in mind, however, you do need SOME volatility, like that seen recently [Spring 2001] and you do need to have to have the Cash Reserve (CR) to make the purchases at lower prices called for by AIM.)

If you follow the method outlined by Lichello,  you will be able to "Buy Low, Sell High" on a consistent basis.

For information about a computer program that calculates for you the Buy and Sell transactions like those above, and which includes the effects of commissions see the AIM Buy/Sell Transaction Calculator Program at
http://www.bean-d.com/cpt/aim-stock-etf-transaction-calculator.php

And, for an example of how AIM does, here's a link to a backtest of AIM, looking at trading the SPY from 2000 to 2009.  From that page, you can also get a free spreadsheet of the backtest study.
Back-Testing Robert Lichello’s Stock Market Automatic Investment Management (AIM) Method

Tags:   AIM account,  Automatic Investment Management (AIM),  buy low sell high,  cash reserve,  Core Position Trading (CPT),  ETF,  exchange traded funds (ETFs),  GTC orders,  limit orders,  PoCo,  Portfolio Control (PoCo),  Robert Lichello,  SAFE,  stock value, 

Core Position Trading
Main Page

Core Position Trading

Core Position Trading Overview
Core Position Trading Alternative to Technical Analysis

Automatic Investment Management (AIM) Basics

Automatic Investment Management (AIM) Basics
Volatility is Your Friend™
Fixed Commissions Effects and AIM
AIM Anomalies
SAFE and Quantity to Sell at Various Prices (chart)
SAFE, PoCo, Prices, and Minimum Orders (charts)

AIM Stock & ETF Trading Transaction Calculator

AIM Stock & ETF Transaction Calculator Description
* ORDER Stock & ETF Transaction Calculator *

AIM Transaction Calculator User Document
AIM Stock & ETF Trading Account Setup
Price Move Required for AIM Stock or ETF Transaction
Commission Effects on Transaction Prices and Amounts
AIM Transaction Calculator Price Range Calculation
Price Range Calculation for Desired Percent Price Move
VEALIES - Adjusting AIM Account Portfolio Control
Indexing Portfolio Control for Inflation (Cost of Living)

AIM Stock & ETF Position Overview Spreadsheet
Position Overview Spreadsheet User Document (old)
Position Overview Spreadsheet User Document (new)

Lichello's 'By the Book' Trade History Spreadsheets

AIM 'By the Book' Trade Spreadsheets Description
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AIM e-gold Trading Transaction Calculator

Because of actions by the increasingly out-of-control fascist U.S. Government, the AIM e-gold transaction software is no longer usable.  Regardless, you may be interested in some of the information about gold, money, and government fiat currency debasement that robs you of capital and purchasing power on those pages linked to from this section, especially in the User Document.

AIM e-gold Trading Transaction Calculator Description
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AIM e-gold Transaction Calculator User Document

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