You are not the only ones confused! Here's my response to our longtime friend Robert G (to whom I also sent the spreadsheet). He thought it required buying on margin. Not so......
Hi Robert: Thanks for responding.
The key aspect in the whole concept of LOW DOWN AIM is the use of $ Available to establish a beginning portfolio control value. Beyond that, is this notion of 'Virtual Shares' Always use them in your calculations, but never actually buy them. So..............
...........No Margin necessary!
All LD-AIM does is allow for you to 'leverage' the $ you invest more than classic AIM. The reason this is true is because you never really buy all of the shares classic AIM would have you buy, You only buy enough to cover the first 'x' sells (depending on how many consecutive Sell transactions you wish to cover) based on your input in that field (up to 5). If you look at Lichello's original example, he never sells any part of his original purchase! Now we all realize how unrealistic his 10, 8, 5, 4 example was, but you can clearly see that (at least on a LIFO basis) none of the original 500 shares was ever sold. So the only real purpose they served was as a placeholder of sorts to establish the initial Portfolio Control Value, and be there, available to sell if and when the price went up. So in realistic terms, if you only buy enough to cover the next 'x' sells, and 'pretend' to buy the other shares, you can improve your ROCAR on those shares that you really do buy. But you still use the Portfolio Control value as if you had really bought all those shares. This allows you to begin your AIM program at a dramatically reduced price, but still 'stay true' to AIM's rules. In the LOW DOWN PROGRAM output section of my spreadsheet, the '$ for next LD-AIM program' is what you save to help you get another one started (diversification).
On the Buy side, Cash Reserve requiremnts are determined in much the same way. It answers the question....."If I run my AIM program using these settings, and GTC orders, How many $ will I need to 'cover' my next 'x' Buys? I did this to help solve the age old dilemma on what is the 'proper' cash reserve needed. Even Lichello couldn't come to a firm number (moving from 50 to 33 to 20% in subsequent editions of his book). Tom had to devise the Idiot Wave so that he was comfortable with his CR settings with respect to the current market mood. WIth all due respect to it, this is different. Just keep enough cash on hand to cover the next 'x' buys.
I obviously did a terrible job in explaining this to you, Bernie, Tom, Keith and Rien when I sent it to you all. But I'm glad to get the feedback. I've already made a few changes to the spreadsheet to make things more clear. I'm also planning on adding an explanatory page to the workbook that explains the theory behind LOW DOWN AIM.
The 'Leveraged' output section simply extrapolates the Low Down approach using all the $ available. You still don't buy all of the shares and you don't use Margin. In effect, it allows you to 'inflate' the Portfolio Control such that you still execute the series of transactions, but for more shares. But still no Margin required.
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