Replies to post #129 on AIM RE-bal

[lostcowboy]

Hi Aimster, its been awhile, but you should still find that info over here. http://www.investorshub.com/boards/board.asp?board_id=966 I have the messages in the header of the board.

In a nutshell, keep track of your average cost (AC), when the stock price (SP)is above AC, buy less, and put the money away. When the SP is below the AC buy more stock than you normaly would. The basic formula is AC/SP = the multiplier. The multiplier is used with your normal investment to ether increace or decreace the size of the investment.
Example, you invest $100 each month, your AC is $10, and the SP is $10 you would invest the $100, But let's say the SP was at $12 You would only invest 83% or $83. If the SP had been $8 you would have had to invest 125% or $125.
That was Mr. Lichello's original idea, but then he got to thinking, Where is this extra money going to come from? So he came up with invest 75% in stocks, and 25% into some type of interest paying account, Bank, or bond fund, or money fund. Thats where the extra money comes from.
Note, Mr Lichello was doing DCA into a retirment fund through out the 60's, and saw a large loss in the early 70's.
One of the things he saw was if he had sold he would have had no loss at all, so he decided to sell all the stock when he had a profit of 100% above Average cost. At that point, the next month the AC will jump up to the current SP.

He then got to thinking, I now have this huge stack of cash, if the stock market crashes, how can I get the cash back into the market at the bottom, or close to it. What he came up with was to use his multiplier again, if the multiplier is greater than one, then subtract one from it, and use the fraction times your cash reserve, to come up with a huge investment amount near the market bottom.

Example, you have a normal investment of $100, you would use 75% ($75) times your multiplier, plus any fraction of the multipier greater than one, times your cash reserves. Say your cash reserve was $5000, and the market had droped 30% below your AC of $10 to $7. Here is what the formula would do.
$75 times (10/7= 1.43), you get $107.14 for the first half of the formula, and (1.43-1=.43) times $5000 = $2150.0 for the second half of the formula. Total amount to invest is $2257.14 and that leaves you with cash of $2842.86 for future investments.

Hope that helps.
Lostcowboy