Praveen,
Not really trying to be argumentative here, but I'm trying to make a point that I think would improve your system. Time is money. As a banker, you certainly realize this. If I asked you how much interest you'd charge me for a $1,000 loan, you'd have to ask me some questions, before you could answer me. One important question, is how long do I want to take before I pay the loan back.
That principle is at work at investing. In my opinion, AIM, STR, have the disadvantage of selling shares too quickly, for too little gain. Suppose I make my initial purchase of 100 shares of XYZ @$20 for an initial investment of $2,000. I'm assuming that the XYZ company has an intrinsic value of $20 a share, and is growing it's earnings and therefore, intrinsic value, at 7% a year (just an arbitrary number). After the first year, XYZ is only selling at $21, thus no sell is made. After year, 2, it is selling at $22, so we sell 10 shares @ $22. Now let's take a look at what we estimate intrinsic value to be, $22.90 (20*1.07*1.07). So, we've sold shares that should be worth $22.90 (based on retained earnings and enhanced earnings power) for $22. We're actually reducing our ownership of a successful business, when the share prices are actually lagging the underlying performance of the business. Over a number of cycles, this is going to be a bigger and bigger problem. Following your model, after a number of years, your best performing companies, you only own $2,000 worth of stock. For the worst performing companies, you've put in additional monies to build them back up to #2,000. So, you're investing more in the losers, and less in the winners. Can there be reversion to the mean? Often there is, and often there is not. Strong stocks can stay strong for years, if performance justifies, and weak companies can get weaker, or even disappear.
Not sure if your book addresses this, but is there any limit to how much money you will invest in a loser. Say you start out at $2,000, and it's now worth $500, will you invest $1,500 to bring it back up to $2,000?
