Hi Ray,
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.
I tend to agree with you on this matter--I would prefer to buy just once at each price level, and wait for a subsequent drop before investing more.
In addition to Conrad's Vortex, I like the Minimum Buying Increment idea that Conrad and I discussed here in previous posts (under the Money Spinner subject lines). The general idea is to figure an initial drop, in stock price, where you would be comfortable purchasing and then requiring that same drop before investing more.
For example, if a $5.00 stock drops 17%, that would be $5.00 - $0.85= $4.15 for the initial purchase price.
Any subsequent purchase would require a drop of at least $0.85, so for example the next purchase at $3.30, then $2.45, etc.
This seems to accomodate a large drop (such as 2008-09) quite well.
