Hi Conrad,
The minimum trade Mr. Lichello uses in his book is $500 which you, he and I seem to agree, is the least amount which would make a transaction worth executing.
He also states indirectly that it would be foolish for a person with a portfolio of $12,000 or more to be making $500 trades. This is where he brings in the 5% calculation.
The one place IMO where Mr. L. messes up is where he states that you can start AIMing with any amount of $$$, which he states early on in the book. Granted he mentions Twinvest much later as a way to build up funds.
If one starts an AIM program with less than $10,000 total one finds that the buy and sell points are too far apart to be apparently attainable. This IMO is what leads to a lot of the monkeying around with the AIM formula in an attempt to speed up the process.
Most of my AIM programs have grown in value to where I never make a trade that is even close to $500.
When you own 1,000 shares of a $45 stock it would be ridiculous to expect a transaction of 11 or 12 shares to have a meaningful effect on the overall portfolio. The 5% parameter takes care of that.
The 5% parameter makes certain that any two consecutive transactions will be of a different number of shares, since any transaction will change the number of shares which will automatically change the number of 5% of the total number of shares.
Bernie
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