Heads-up: some of the links in this post are Amazon affiliate links, which means if you happen to buy something, Amazon gives me a little moolah.
Automatic Investment Mangement, or AIM, is an amazing concept once you get past the outrageous-sounding title of Robert Lichello’s book, How to Make $1,000,000 in the Stock Market Automatically. I’m not going to claim that I’ve made a million bucks (yet, but I’m working on it) by following the amazingly simple formula offered in this book, but after I started using AIM my portfolio started gaining rather than losing, so I’m going to claim that as a win. Just as important, I stopped having ulcers about what the market was doing!
After years of banging his head against the wall, Lichello came up with a simple math-based approach to investing that, using stocks with significant volatility, has the potential to generate huge returns over time with very minimal risk. There’s no gimmick and no gotchas to this system, and anyone can do it. Moreover, you don’t have to start out with a ton of money: you could take even $500 or $1,000 and put it to work without losing sleep.
I’ve been trading in the stock market for going on five years now, and I’ll wager that at one point or another I’ve tried virtually every “trading system” out there. Many of them will make you money if you have a cast-iron will and can steel yourself to the inevitable losses that almost all of these systems incur, in exchange for the less frequent large wins that, over time, will generally move you ahead.
Unfortunately, I simply don’t have that emotional fortitude. The market is driven by fear and greed, and despite my best efforts to stick to a given plan, fear eventually won out. I certainly won some decent trades, but I lost a fair bit more, and my net balance was in the red. I hadn’t lost my shirt, but enough to sting. Worse, I felt like I was caught in an endless cycle of frustration. But I also realized that, like it or not, the stock market is the best way to leverage your money and build wealth…IF you can find a system that works for you, and if you can stomach it.
So, despondent and beaten, I sat out for a while, with everything in cash on the side while the market did its thing, mostly rising. Then – I kid you not – I saw an ad or something (I can’t remember now exactly what it was) for this ridiculous sounding book in one of those spinning racks in a grocery store somewhere. “How to Make $1,000,000 in the Stock Market Automatically.” Yeah, right. What a preposterous title! What moron would fall for something like that?
I checked out of the store and headed home…only to be plagued by thoughts of that ridiculous book. Cursing myself for a fool, I started looking into it…and bought the Kindle version of the damn thing from Amazon. If nothing else, I figured I’d probably wasted more money on worse things.
As it turns out, I think that’s probably the best money I’ve ever spent. The first part of the book is a recounting, told in a very engaging first person view by Lichello, of his trials and tribulations, which culminated in losing his shirt, along with millions of others, during the bear markets that hammered people in the 1970s, particularly in 1973, when the Dow lost over 45% of its value. More recently, those who saw their lives destroyed by the 2008 Financial Crisis can sympathize, with the Dow losing nearly 55% between October of 2007 and March 2009. And the times we’re in now – April 2020, as I write this – are uncertain, to say the least.
Getting to the meat of it – Lichello’s Automatic Investment Management (AIM) system – he describes both how he came to develop the system, and then steps you through it. It’s one of those things that, while perhaps not on the same level of genius as Albert Einstein’s E=MC^2, is nonetheless nearly as elegant, and likely will have a far greater direct impact on your life.
The mathematical system Lichello devised uses basic math that most fourth graders could easily grasp. I’m not going to go into all the details here, because while the system is simple, explaining how it works takes a fair bit of work. Suffice it to say that it’s a nearly ideal (although still imperfect) method to buy low and sell high, while preserving and protecting capital if the market plunges. AIM is also immune to the principle of many “systems” that work as long as only a few people do it, but when thousands are doing it, the system fails. AIM is entirely math based, telling you how much to buy or sell (or hold) at any given point for your stock value.
Just as one example, let’s take a look at the ups and downs of the 1970s to use as a reminder that the market isn’t ALWAYS in bull mode. I started the AIM machine with $10,000 in “stock” using the Dow, and $10,000 in cash, buying in at a non-optimal point (i.e., not at an ideal low), the close of March 1964, and ended it at roughly the same price in July 1982. Why those dates? Because a “buy and hold” investor would have made just about zero on his investment after 18 years. Ouch.
Now, I did “cheat” a little and instead of using the actual Dow figures, slid the decimal to the left two places (i.e., 900 would become 9.00), as AIM needs to have enough share liquidity to function properly in making buys and sells. But the percentages and where AIM would buy and sell would remain the same. This is, after all, just to illustrate how AIM works.
So, AIM goes in and, as you can see, buys on the way down (accumulation), and then sells on the way up (distribution):
Dow Jones Industrials in the 1970s
By comparison, an AIM investor would have increased the portfolio by 13% . Now, that doesn’t sound like much, but consider:
- I ran this using the MOST conservative options for AIM, without any of the options that help maximize returns.
- This is the Dow Jones Industrial Average, which is hardly a lively chart – AIM thrives on volatility.
- The ending accumulation doesn’t take into account interest you would have been able to make – which probably would have been at least 5% APR at the time – on your cash holdings.
- The biggest drop in your portfolio from your starting amount of $20,000 would have been -10% – at the very bottom of the market in 1974! Your capital would have been protected while others were being wiped out.
- Your held shares would have increased by roughly 32%.
That last one is huge. Because the Dow then increased over 200% before the 1987 Crash. AIM would have been selling on the way up to save up cash, then would have again gobbled up a bunch of shares during the crash.
Anyway, don’t let the sluggardly performance of the Dow example above put you off: turn AIM loose on frisky stocks with lots of volatility, and it can churn out some serious money, and there are a variety of ways to tweak it to improve its performance that don’t require you to be Wile E. Coyote, Super Genius. I’ll probably do another post or two on more volatile examples to show some of AIM’s potential.
The most important thing, for me, at least, is that with AIM I don’t feel stressed all the time about what the market or my stocks are doing. I know it’s going to buy shares when prices go down enough, and sell shares to store up cash for future buys when prices rise. And there are various tweaks you can do to improve its performance — all while preserving your precious capital.
Again, I haven’t made a million bucks (yet), and I’ve lost a lot of time dithering and screwing around with it. That’s part of the reason why I’m writing this and future posts on investing: to hold myself accountable to sticking with the system, and to show others things to do and NOT to do on their investing journey.
Anyway, I highly recommend Lichello’s book on AIM – check it out on Amazon!
Hello,
Thanks for the article. I bought your book a few years ago. Now, I have created a spread sheet and plan to use this from 2021. My, question is that I want to try this method for futures trading. Here you show Dow index. But, for futures, we buy contracts. I am trying to figure out how to modify the spreadsheet for futures to reflect contract buying and selling. Could you please through some insight in to this.
Thanks,
Ravi
Hi, Ravi! It really shouldn’t matter: you’re basically starting with the initial value of your securities, then buying more when the price drops enough (per AIM), or rises enough to sell. You could do the same thing with physical gold or anything else, which is a side benefit of the system.
I was turned on to the AIM system by my dad
I have a question about the Buy order equation
why is it after I execute the buy order, and recalibrate my cost base, if I re-plug in the new numbers it would still tell me to buy.
Is it required that you don’t do the AIM buy order too frequently or it will tell you to buy constantly like a dog chasing it’s tail?
The examples talk about doing AIM every week or every month, but I am bored at work, and check the market frequently throughout the day.
I also don’t know when to cut my losses on one of my stocks. It has already dropped by 40% in a month $FLGT.
Andrew – Yes, AIM will sometimes have you buy more shares at a given price level. From Lichello’s book: “Sometimes when a declining market suddenly shrieks to a stop, AIM will pump its brakes to avoid going into a spin. Instead of curtailing your investments entirely, it will call for sharply decreasing investments for a month or two—and then nothing—just to pick up a few cheap shares in case the market turns around and heads upward again.”
The trick here is to put some time in between those buys to give the market a chance to move. For example, in my adaptation of AIM, I use the 2-day high for my first buy stop, then the 9-day high. If price has dropped a lot, then starts turning around and triggers the 2-day high stop, then moves sideways until the 9-day high drops down to the same level, I’ll add more shares if AIM says to do so. But typically a week or so has passed before that happens while price is consolidating. If you, say, buy shares one day, then buy more the next, you’re just burning cash at that price level without giving the stock time to move or consolidate. So do NOT be in a rush to buy.
IMHO, you can sell any time AIM says you can, and I’ve had days where I make 3, 4, even 5 sells if price really spikes. But I’ve found that it’s just as well to set higher buy limit orders than trying to take multiple little chunks of profit. I typically try to find resistance zones just above where AIM says to buy and plug those into my sell limit orders. But in cases where those aren’t handy or clear, I first plug numbers into AIM to find the first sell level after the last buy. Then after that sell triggers, I set the next sell limit order for 10%, 15%, or 20%, depending on how volatile the stock is (there’s no “right” answer).
As for cutting your losses, if you choose stocks that have proven they can take a beating and then recover, you do NOT want to do that! The whole point behind AIM is to take advantage of those deep discounts to leverage the market. When I entered NNDM, I rode it down to -65% P/L before my buying began in earnest. Right now I’m over +300% P/L. Manage your risk by diversifying your positions in your portfolio, particularly with stocks across multiple sectors. If one of them REALLY tanks or even goes bankrupt, you’ve only lost one position. And even if a stock really gets creamed, as an emergency measure you can reset the calculator. As long as it remains volatile and doesn’t just fall to near zero, eventually you’ll make it back to profit.
Ok thank you for the response
I will read over your response carefully and implement your advice.
For anyone interested, I’ve created a site that calculates prices for you if you want to trade AIM what I call “continuously”. Total bare bones site I actually created for my son so he could start using AIM: http://aimcalculator.com/
What SAFE do you use in your daily checkup model?
What Total Portfolio Value % do you use as a minimum order in your model?
What values do you use, buying and selling, to alter the stock control?
I just use the standard SAFE of 10%, and an order threshold of 5%. Basically, I use the original AIM calculations – I didn’t change anything for that.
I’ve read and studied AIM for over a year now. My personality and complacency is keeping me from implementing it. Do you have any thoughts on implementing an AIM plan into a portfolio that is already invested?
I would consider carving off some small fraction of your portfolio and use that to get used to the AIM concept. Maybe buy shares in a fairly volatile ETF, or something like that, just to get a feel for how it works.
I am already invested (in a volatile stock, plus 50% cash) and want to start using AIM. Rather than carve off a small fraction of my portfolio, I think I want to use AIM for all of it (since I don’t trust my prior decisions). Would it make sense to tell AIM that I bought all of the shares at today’s price in order to get started?
Well, you could do that. However, I’d suggest you consider entering your average purchase price instead. That way, if the price of the stock has risen significantly since then (~17% or so) to trigger a buy, you’d sell some off. Or, if it’s fallen enough, you could start tracking a buy stop-limit order at the 5-day high stop (note: in the video Is on YouTube I think I was still using a 2-day stop, but I’ve since stretched that to 5).
Thanks for your reply (and your spreadsheet)! The stock fell from $3.30 to $2.30 over 2 months, and I bought 8 times over that period (not using AIM yet). Today it rose 24% from $2.10 to $2.62. My avg cost was $2.87, and AIM says to Hold at $2.62. A 17% rise from $2.87 would be $3.35. AIM says to buy at $2.57 (10% below my avg cost). Can you explain buying at the 5-day high stop? I didn’t see it in the video. What I could do now is make a sell order at $3.35 and a buy order at $2.57, but that’s pretty close to the current price of $2.62. Since it opened at $2.10 today, I think I would set the buy at $2.20 or so in case it falls a lot again. Is that cheating? I think I need to understand 2-day and 5-day stops.
David – You’ve got the sell order right (just make sure it’s a sell limit order set for good until canceled + extended hours). The easiest way to see the buy stop is to toss a Donchian (or price) channel indicator on your chart and set if for a 5 day period (and change it from line to dots to make it easier to look at, lol). And I’d use 5-13-26-52 day stops, rather than what I’d put on the videos. I tinkered some more with those and came to the conclusion that they’re too “fast.” Anyway, try putting that indicator on the chart – I suspect you’ll immediately see what I’m talking about. Also, you can reach me on twitter at @Mike02222093 (AIMInvestor) or webman9113 on Stocktwits. Then I can post pics and stuff, too…
Nice article! Good to see Lichello’s ideas still being referenced. One thing that I think has prevented more widespread adoption (beyond the sheer outrageousness of the title) is in the Q&A I believe around page 183, Lichello is asked if he’s made $1,000,000. He answers in the negative and explains he’s more of a tinkerer. which implies that he didn’t really trust the efficacy of his own idea. Also in the example to get to $1M, he uses a repeating sequence of prices, not at all what one would encounter in the real world. Which begs the larger, and probably unanswerable question, has anyone used AIM to get to $1M? I suppose Tom Veale who used to champion it in an AIM user group years ago may have, but I don’t know for sure. Still, an interesting thought.
Still working with it some and have recently begun a new experiment. My broker allows me to take cash and convert it to other currencies. I’ve looked up a few and taken a position of around $1k in each. I then price it all in converted dollars, using the amount in the foreign currency as “shares.” As the value of the conversion goes up or down AIM will tell me how much foreign currency to acquire or convert back to dollars. Just started so not sure how it will play out, but I figured with the small investment I couldn’t go too far off, risk wise. Who knows, adding this to the stocks/funds I AIM, I just might get to that $1M, Real Soon Now. Thanks again for the site and the ability to comment!
As it turns out, I’ve had the same problem as Lichello, lol! Too much tinkering. On the other hand, I think I found a viable solution to AIM’s main issue, which is burning too much cash on the way down using timed buys, vs. buys using technical indicators. I would wager that there are people out there who have made $1M. I have zero doubts that I would’ve made >$1M with AIM if I’d started 15 or so years ago, maybe even less. And I still might make it, I don’t know.
And yes, it should work for your currency conversion experiment. As Lichello indicated, you can use it for anything, even physical investments like gold: all you need is sufficient price fluctuation and enough liquidity to buy/sell as needed! Good luck!!
Hi Michael, I really liked your videos, I haven’t checked out your spreadsheet yet but it looks like a good one. In case you did not know there is an AIM Group https://investorshub.advfn.com/AIM-Users-Bulletin-Board-AIMUSERS-949/ which is open to anyone.