It occurred to me while looking at the 2018 Calendar that some serious
time has passed since I first turned over my portfolio management to the
Lichello AIM methodology.
I first read Mr. Lichello's book sometime in 1986 or '87. Around 1987 I
started keeping a separate spreadsheet of my portfolio as if Mr.
Lichello's AIM was managing it. I was trading in an AIM-like fashion but
without the discipline. By mid-year I had raised far more cash than AIM
had with the same portfolio. Ha! See how smart I was?
The markets started into a decline at the end of the summer and I was
busy buying up real bargain priced shares right through the end of
September. Everyone knew that September was annually a crummy month to
own stocks on the Long side, so I felt good about my buys.
AIM didn't spend a dime in August or September........
Along came October and more declines in the general market. I got the
checkbook out and bought even more stock shares. By the middle of the
month I had spend down approximately 50% of the peak cash I had had
during the summer.
AIM didn't spend but pocket change in the first two weeks of October......
Along came October 19th and the jaw dropping declines (crash?) that
happened that day and the following days. I was on the phone with my
brother who had a real time ticker feed at his office. He was with a
major brokerage house at that time. I had a 20 minute delayed signal at
my office. At one point during the day while we were on the phone he saw
the Dow 30 off 300 points (or around 13%) while my 20 minute delayed
signal showed the Dow off just 200 points (around 8%). He said his firm
was no longer accepting any Limit Orders as nobody could get a quote
that had any meaning. Nobody had confidence the "real time" ticker was
any more valid than my 20 minute delayed signal.
The Dow 30 had been at around 2360 on the 16th of October, 1987. It had
a intra-day low on the 19th of 1678 - a 29% intra-day decline. It had
been about 2700 at its August high water mark. So, at its low, it was
off 37% from that peak. Most of the damage was done on October 19th.
Essentially all shares I'd bought (while AIM did mostly nothing) from
Sept through the 15th of October were now seriously under water. AIM
finally responded to the massive sell off and started buying shares.
The markets bounced around through early December. I used the pocket
change I had left to continue buying shares as I could. AIM, on the
other hand, was buying more and more shares and spending very large
hunks of its still healthy cash reserves. AIM exhausted its cash reserve
on December 4th, I exhausted my cash the same day. The difference was
that I was buying only a pittance of stock while AIM's proportionality
function had it buying most heavily.
Why am I telling you this story (again)? Because it was January of 1988,
30 years ago, that I turned over management of my portfolio entirely to
AIM. Mr. Lichello's AIM had shown greater propensity for generating
profits while the markets were rising by selling less inventory. AIM had
had far greater patience awaiting the markets' decline and had spent
essentially just pocket change before the "crash." I had sold more
shares, raised more cash, but had foolishly recycled that cash way too
soon on false bargains. I spent way too much, too soon and had very
little in the way of cash when the real bargains showed up. AIM did its
most serious buying as the markets bottomed.
So, AIM was a better Sales Department and a far better Purchasing
Department than my seat-of-the-pants methods.
It's been 30 years since I made that decision and overall the markets
and AIM have been kind to me. I've refined my AIMing over the years and
have a pretty solid system in place to manage my money. Like the words
to a song I've heard,
"I Wish that I knew what I know now
when I was younger...."