Do you want to know how to buy low and sell high when inesting in stocks or mutual funds? I discovered a book by Robert Lichello on how to make money in the stock market and reducing risk by taking emotion out of the process. His book is called “How to Make $1,000,000 in the Stock Market Automatically”. It is available online for $5.99 on Amazon.
It is natural to want to buy when stocks are going up. We also tend to sell when they are going down. This is the opposite of what we need to do to make real money in stocks or mutual funds
Mr Lichello lost a lot of money in the 1970’s during the worst recession since the Great Depression. He and many others lost about 50% in a two year period. That is what led him to write this book. There had to be a better way. Well he found it.Back testing showed very good results from Lichello’s method.
In simplest terms you buy more when the price goes down and buy less when the price goes up. This leads to paying a lower than average price.
Eamples of how it works
Start with portfolio of $10,000
Start with cash reserves of $10,000
Start with stock price of $10
Stock price goes to $8 the next month. Total value is $8,000. Add 10% which makes $8,800. Take $10,000 – $8,800
=$1,200. Since this is a postive number you need to add $1.200 worth of stock at $8 a share.which is 150 shares.
The next month the stock goes to $13. The stock is worth $13,000.
Take away 10% or $1300 = $11,700 $10,000 $10,000-$11,700 = -$1700.
Since this is negative number it is sending a sell signal.
You need to sell $1700 worth of stock or 131 shares (approximately).
Each buy or sell signal is based on a + or – 5% change in price.
Back-testing results
I read an online article on Robert Lichello’s book with back -testing of stock prices. He used a period from January 2000 tp July 2016. He selected an ETF that is commonly used (SPY) mimics the S & P 500.
He concluded the AIM did a good job of giving good buy and sell signals. It was not perfect because it missed a sell signal in October 2007. It was accurate on all other signals.
For details see the article in https://toughnickel.com “Back Testing the Robert Lichello Automatic Investment Managememt (AIM) System for Timing the Stock Market.”
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