A.I.M. Users Bulletin Board

[ls7550]

Hi Daniel

Selective extracts from Lichello's book (paraphrased) ...

Blue-chip/Mega-caps can be financially larger than entire countries and are more inclined to rebound no matter what. But even such stocks can still fail, just that they’re less inclined to fail. So a single stock is too few, much above 10 stocks is getting to be too many.

Select from the Dow 30 the strongest most up to date stocks as your base candidate stocks. One from each of the 11 sectors is a reasonable choice.

Buy in equal $ amounts, and look to keep them fairly even over time.

Review quarterly

“..if you operated your AIM program the right way, with a single program covering several stocks, when AIM asks you to invest a chunk of money you decide which your several stocks deserves it the most.”

          o O o

... in that context, you have a single AIM that you review quarterly and there's no need to calculate in advance, just run the calculation at the review date/time. As part of the review also look to perhaps reduce some of one stock that has risen to add to another stock that has fallen - i.e. to broadly look to rebalance towards equal $ amounts invested in each stock as and when modest size deviations away from equal weighting become apparent. Fundamentally you just need your Portfolio Control (PC) value written down on a piece of paper stored in your wallet. Look up the portfolio's recent stock value (SV) and if greater than PC then its a potential Sell ("S"tock value is greater than PC) and you subtract PC from SV to identify the difference, but also subtract 5% of stock value (SAFE) from that amount (and sell sufficient shares to near compare to that amount, but only if a positive value). If PC > SV then its a potential "P"urchase shares action (PC is greater than SV). Subtract SV from PC, deduct 5% of Stock Value from that, and trade (purchase) that amount of stock value (but again only if a positive value). Only for purchases, increase PC by half the amount of additional stock value purchased and record that value in your wallet in readiness for the next review. For sales, PC remains the same as before.

Used to be that with pencil and paper along with access to a phone you could manage that from anywhere. Nowadays its even easier as with a smartphone you don't even need to speak to a broker.

Some investors look to hold the entire global stock market, often citing that it is the few great stocks that need to be captured and as they cannot be predicted - buy-the-entire-haystack. But in holding 1000 (whatever number) of stocks, even if one stock rises ten-fold, assuming all stocks are equally weighted then the reward relative to the total portfolio value from that single stock is small. 1/1000th invested in something that rises 1000%. With 10 stocks, if one rises 10% then that uplifts the whole portfolio by 1%.

Others fear holding few stocks, preferring indexes, on the basis that a major stock index such as the S&P500 will prevail pretty much no matter what. However often a single stock within that index might be 10% of the indexes total weighting.

If you hold 11 megacap stocks diversified across the 11 sectors and keep them around equally $ weighted, and periodically rebalance, where AIM indicates when it looks appropriate to increase or reduce stock exposure according to the market cycles, then overall you'll tend to do a lot better than many other PI (private investors) - who will often over trade, and/or make poor decisions such as buying when high, selling/capitulating when low (fear/greed).

Clive