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How to make A Million Dollars with Lichello's AIM (Automatic Investment Method) A Case Study
I have been told my recent Hubs discussing the AIM method of investing invented by Mr Robert Lichello and explained in his book, "How to make $1000000 in the stock market automatically" do not provide enough detail to see how I have utilized the material to come to my conclusions. This HUB is a more detailed explanation offering my understanding of the material using a 2 year study of an investment in SGMO.
Pricing discussed for each month is taken from a summary of stock prices for SGMO created on Yahoo Finance. My method has chosen a review of SGMO monthly including a decision to buy, sell or hold using Mr. Lichellos formulas.
My first investment was using Dec 2008 as a starting point. At that time SGMO was selling for $3.48 a share. Taking $1000 of the $2000 I have to invest I bought 287 shares of SGMO. I now own $1000 of SGMO and have $1000 to use as the workhorse of this method. It is this cash I use to either buy SGMO or add to the $1000 when the method asks me to sell shares.
The method now requires us to create an amount we consider as safe. It is what we use to help stabilize our decision. This number is always 10% of the stock value each month. The other number we must key on is our portfolio control value which is the amount we initially invested in the stock plus 1/2 the value of the stock we buy or minus 1/2 the value of the stock we sell. Initial stock investment is $1000 and if the first month the method asks us to buy $100 of stock, then the portfolio control value would be 100/2 or $50 plus $1000 = $1050 Portfolio control value.
Dec 31, 2008
$1000 investment in SGMO=287 shares at a price of $3.48
Safe amount is 10% of $1000 or $100
Portfolio control value = $1000
Cash = $1000
January 30, 2009 stock price is $4.15 an increase in the stock value of $1192.53 which is our 287 shares x share value of $4.15. 10% of this $1192.53 is our safe value or $119.25, Cash is still $1000, portfolio control $1000. Take stock value $1192.53 minus PV (portfolio control) of $1000 and you get a positive number of $192.53. this is profit. Our method tells us to sell stock to keep our profit. The amount we sell is this profit minus the safe amount of $119.25 or $73.28. I used the value of $4.15 a share as the basis for my purchase for this example. I now own 269.7 shares of SGMO
February 27, 2009 stock price is $3.57 a decrease in the stock value to $962.83, which is our 269.7 shares of SGMO x $3.57. 10% of this $962.83 is our safe value or $96.28. Cash is now $1073.28 which is our $1000 plus the profit from the sale of $73.28. Portfolio control is now $1100 rounded up. Take stock value $962.83 minus PV(portfolio control) of $1100 and you get a negative number of $137.17. This is loss. Our method tells us to buy stock to increase our position at a lower cost. The amount we buy is this negative amount of $137.17 minus the safe amount. Both numbers are negative we get a total of $233.46 so we buy shares with this amount of cash. We now own 335 shares of SGMO. Again I used $3.57 as my purchase price which is an estimate only depending on the market at the time of purchase. .
From two months of analysis, we have seen both a profit and a loss and how I arrived at the buy/sell/hold action for each month. When you read the book, you will find his method is slightly different from what I have explained. My changes allowed me to create a spreadsheet I use to make the decision easier each month. What are the results from this method for SGMO?
2009 showed a profit of $1256.87 with the AIM Method I utilize. I ended the year with 285 shares at a price of $5.92 a share. With cash of $1327.01, stock value of $1829.86 total Portfolio value is $3256.87. The result of a buy and hold method would have provided a portfolio value of $3398.08 if you had sold. The buy and hold method would have created a slightly higher profit in 2009.
Using the AIM method in 2010 you would have realized a profit of $725.38. The buy and hold method would have realized a loss of $99.66. This does not take into consideration adding the profit generated in 2009 AIM methods. In both of my computations I worked the formula using $1000 cash and $1000 stock purchase. The difference was 2010 SGMO went from $5.92 to a price per share of $5.33. AIM was the better method to generating profits.
What is interesting is those who are successful with AIM will adjust the method Robert Lichello originally created utilizing what they learn from its application.
Toofuzzy actually created an AIM formula online you can use to make the decision.
Another user provides another explanation of this method.
This AIM user also notes AIM success was limited during the 80-90's due to rising prices. Our example of SGMO in 2009 highlights the same shortcoming of this method during rising prices. this user offered this comment:
Mr. Lichello designed AIM during the '70s when the market was oscillating in a trading range with a flat trend line. He assumed that the Cash held in reserve would rise to a new high point in dollars, but not in percentage of total value before it was recycled to buy more shares. The reality of the '80s and '90s has been that the trend line has been consistently upward. Using Mr. L's AIM strictly "by the book", would have led users to have enormous cash reserves, but also to have rather sedate total performance. The cash reserve would have been an enormous anchor.
Remember this is one of many tools to consider as you look to profit during 2011 and beyond in stocks. My suggestion is to use the method you understand without worrying. AIM's goal is to provide the investor with safety and opportunity for profit.