I guess the reason I think like this is because when I first began investing many years ago, (I'm 70), I learned the "Constant Value or Constant Dollar" method of investing. I am sure that you are aware of this money management method of buying and selling around a "constant" or set dollar investment. For instance, one might have $100,000 in a fund or stock. They decide that they will buy or sell anytime the stock gains or losses $5,000. So if the value increases to $105,000 they would sell $5,000 and bring the value back to its "constant" $100,000 value. Reverse that action if it should decline to $95,000.
The problem with investing that way is because it requires someone to keep a very large cash reserve in case of a large market decline.
Now then, when I read Lichello's book back in 2004 I like the idea of using a SAFE value to dampen down the buying as a stock declined. I never did like the idea of using a Portfolio Control and increasing it whenever a purchase is made. That is more or less market timing because that is telling an investor that the decline will be over soon and to make as many purchases as possible and make each purchase as large as possible. An investor can't predict how far the market will fall. Also, the idea of waiting 30 days between purchases might leave a lot of money on the table that might otherwise have been made if the investor had a better way of making his purchase.
I got burned in 2008-2009 and ran out of cash way too early before the market finally bottomed out. I then decided there had to be a better way.
One other thing I thought about this morning. That is, since every purchase is a more meaningful purchase doing it the way I suggested, then one does not need to keep such a large cash reserve on hand.
For instance, suppose one decides to use a 10% SAFE and a 10% Minimum Transaction for their settings. This means that their stock has to decline 17% to trigger the first purchase. It also means that the stock will need to decline 17% for each additional purchase after that if the Portfolio Control is reset to the Stock Value after each purchase. So, an investor might figure that he will keep a cash reserve on hand to handle a 50% decline in value. All he needs to do is figure out how much 3 Buys would cost (17% X 3 = 51%) and that is how much cash he would need to keep in reserve. I know those numbers aren't exact, but they are close enough.
In his book Lichello warns against spending money like a "drunken sailor", however it is my opinion that is exactly what happens by doing AIM by the book. The first purchase is usually meaningful, but subsequent purchases are not a prudent use of the cash reserve....they are actually a foolish use of one's money because of the Residual Buy problem.
Anyway, this is my opinion.
Regards,
Ray
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