Remarks:: Dear Traders/Investors please consent your financial adviser before taking any disciplinary action based on above recommendation. Thanks Alison, I have been using these free stock chart sites for a few years now, anyone can feel free to suggest a good one I may have missed. When markets are low, it can seem like there is no bottom, the market will never bounce back, which makes it easy to follow the herd and sell low. I like the ideas both about Lichello’s AIM program and the conversation about market trends.
In the late 1970’s Robert Lichello published a book titled How to Make $1,000,000 in the Stock Market – Automatically ” which presents a stock market timing system that claims to do exactly that. This is a built in risk regulator that will stop you from exhausting your cash reserves when the market is going down or building too much of a cash reserve when the market is going higher. After the market bottomed in 2002, we experience a 5-year period of rising prices.
To answer this question we will use historic stock prices and run the AIM algorithm through its paces. We will use historical prices of one of the most active exchange traded funds (ETF), The S & P Depository Receipts, stock symbol SPY. So we can test AIM through a couple buying phases, at least one selling phase, and get a read on the current market. From the market peak in October 2007 there is nearly a straight-line tumble until February 2009.
From January 2000 to December 2014 the SPY price history has ranged from $68.11 to $208.72. During this period there has been two downturns in the stock market, one 5-year period of increasing prices and of course the current price increases since March of 2009. I think the profolio control of a stock going to powder, will not give a buy signal for you to invest.
In spite of the initial purchase being close to a market top, the overall portfolio performance is not bad. As of 12/31/14 the hypothetical portfolio consists of 106 shares of stock and $19,831 in cash reserves for a total of $41,618 or a gain of 108.1%. Employing a buy and hold strategy would have resulted in a total of $29,761 or a gain of 48.8%. During the two market downturns AIM caught both bottoms with buy signals, on the up side AIM missed selling at the 10/2007 peak.