A.I.M. Users Bulletin Board

[BowlerBob]

Allen,

I think you misunderstand Ocroft's method. This is NOT for existing positions. Ocroft carefully explained that he looks for several candidates, stocks that are currently rated A+ in quality by S&P, then looks at those stocks on a graph. The times that I have looked at the S&P list, there have been more than 40 stocks rated that high.

When he looks at the graphs, he looks for those stocks that have had a recent (within the past year) high point and have since fallen from that high. Of the 40+ stocks, perhaps only 10 meet this qualification. He then begins a 50/50 AIM program on each of those 10 as though he bought them at their High Point (this is a "pretend" program because that pretend initial purchase took place in the past, he did not actually make the buy at that time).

He then runs the AIM program for each of the stocks up to the actual date he is considering them. Most of these stocks will not have fallen enough to trigger a Buy signal from AIM (remember, these are the 40+ best stocks available in the market on today's date), but two or three may have dropped enough to trigger that Buy signal. He now ignores those still in the Hold Zone and focuses on the two or three stocks remaining. If one, or more, has generated Buy signals in the past and now gives Zero Buy/Sell advice, he considers making all the purchases AIM has advised up to that date. He still has not spent any money at all -- he's at the decision point now.

This process should tell you that he is not "Ocroft AIMing" his favorite stock, or stocks, except in the sense that his favorites are the stocks rated A+ by S&P at the time he is looking. That means that he is not stuck waiting for the stock to "fall" again after he has "sold out", he just finds a new candidate for his money by following that same procedure again, and again. The only time he has his money sit "idle" is when there are no candidates, or he just wants to sit out for a while.

So what do you do for the initial buy? Follow the advice that others have said, "...buy the worst performer(s)."

This is almost the exact opposite of his method, as far as I can see, unless you are limiting it to those A+ Rated stocks. This is his most basic tenet -- they must still be rated A+ on the date he is considering them.

If you are considering using the "method" on something other than those A+ Rated stocks, you are basically doing the same as following a long-term moving average on the the stock/ETF you are considering. Mebane Faber has a book out, "Ivy Portfolio", in which he describes purchasing a Portfolio of ETFs that are "Asset Allocated", similar to what Tom has many times referred to, "The Ultimate Buy and Hold" portfolio. He then adds a 10 month moving average on each ETF, as opposed to periodic re-balances. In my mind, to use Ocroft's Method, but by-pass the S&P A+ qualification, is to simply use AIM as a substitute moving average. It works, as evidenced by jaiml's example on IWM, but if he ran a "comparison test" using a 10 or 12 month moving average on IWM, I think he would come up with similar results.

Best regards,
Bob