-Q-
Manish from India. Great fan of yours & Mr Lichello & AIM system that is your personal passion.
After using and studying AIM, not able to resolve in my mind of one core question:
is AIM an investment system or trading system at heart?
Also, how many cycles it requires to beat Buy& Hold.
Thanks Sir
-A-
Dear Manish,
Thank you for your note of introduction and AIM comments. Yes, since first reading Mr. Lichello's book back in 1986 I've found AIM to be the ultimate contrary system for long term investors. Your excellent question can only be answered by addressing both ideas:
The fundamental question AIM answers is "How much more or less are you willing to risk today than at a previous point in the equity price cycle?" With that in mind I'd call AIM an investment Risk management system.
AIM can also be considered a profit capture system (trading system?). Many trading systems abhor down trends and will sell out (even at a loss) if the markets move against their positions. AIM's internals don't follow such thinking. It will build a position with more inventory at a nice discount to maintain a pre-determined risk threshold in that investment. (Buy from the Scared) AIM will also not let too much value to build above the current risk threshold before it starts to reduce the amount at risk and capture profits. (Sell to the Greedy)
Seeing as the change in value between AIM's accumulation phase and its distribution phase is around 15% to 30% depending upon AIM settings, the trading isn't high in Frequency. Most "traders" would be bored to tears with AIM. In that sense AIM isn't very close in nature to most other trading systems.
Because of AIM's high amplitude range of profit capture, the trade frequency is pretty low for most diversified investments and even most individual company stock investments. AIM generally will exceed Buy and Hold once AIM has accumulated more shares (or invested value) than the Buy/Hold starting position. So, if one starts with 50% invested (original AIM) in the AIM engine it will take more cycles than if it starts with 80% invested (AIM-High). Once AIM pulls ahead it might trade the lead once or twice over the next price cycles but will then usually pull into the lead and stay there.
Starting with 50% invested if the cycles are deep enough to exhaust the cash reserves, it takes 3 or 4 cycles to pull completely ahead of B&H. Starting with 80% invested, it should take fewer cycles to achieve value in excess of the Buy/Hold investor.
Best wishes,
OAG Tom
Buy from the Scared; Sell to the Greedy.....
