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AIM Algorithm Changes

Improvments to Mr. Lichello's AIM model

Translate to French

AIM "By The Book"

The "by the book" example is shown first for two reasons. It should be the basis for all comparisons and also
it is the poorest performer of the group. That said, there's still merit in the use of AIM strictly by the book.
For those investors who upon retirement are going to have to draw on the Cash Reserve for living expenses,
this example surely shows how to build that reserve nicely while keeping up with inflation. Compound
growth here has managed 10.8% since 1982 - the beginning of the fund's history and the beginning of the
biggest BULL market in history. Not bad considering that it's 27% invested and 73% is in Money Market
Funds!

AIM With "Split SAFE"

As early as 1989 I started to play with the idea of dividing Mr. Lichello's SAFE into two separate
components. It was while investigating AIM's use with mutual funds that I discovered that it just didn't make
good use of the Cash Reserve if left at 10% for both buying and selling. Since AIM only adjusts Portfolio
Control during buying events, it seemed to me that reducing the SAFE value on the buy side while adjusting
the Sell SAFE to create the proper trade range would give superior returns.

In this example we're using 8% Sell SAFE and 0.0% Buy SAFE. This simple change to Mr. Lichello's model
increased the average yearly return to 14.00%, and total return by about $32,000 since 1982. The account is
45% invested and 55% cash at the end.
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AIM With the "VEALIE"

I started experimenting with the VEALIE concept in 1994 and 1995. It was clear by then (five years into
using AIM with mutual funds) that the Split SAFE concept wasn't enough to counteract the shortfall brought
on by an extended BULL market. The VEALIE works to extend the risk envelope of an AIM account by
placing an upper limit on the Cash Reserve's percentage of the account. Once you have achieved the proper
Cash Reserve level for the account, the VEALIE substitues a small change to the Portfolio Control value in
place of a Market Order.

In this example I've used the IDIOT WAVE as the guide to the Cash Reserve for each month of the history.
I've also set the Buy and Sell SAFE values to the full 10% that Mr. Lichello first recommended. Using
VEALIES alone managed to improve overall results compared to the previous examples The account is
showing 34% Cash Reserve at the end with 66% invested in the fund. Total Return is about $61,000 better
than AIM "by the book" and $29,000 better than Split SAFE. It represents a 15.6% compounded annual
return.

AIM with "Split SAFE" And "VEALIE"

Well, what if we combine the benefits of more efficient buying (provided by Split
AUG SAFE)
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management of the Equity/Cash Ratio (provided by the VEALIE)? As you can see, this model provided the ❎
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best total and annualized return. Total return is about $94,000 better than2000
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compounded annual return of 17.5%.

What is the price for this extra performance? Please note that in 1983, 1987 and again in 1990 the account
essentially ran out of Cash Reserve. Well, what better time to be 100% invested than right exactly at the
market price bottom? At the end of this example, the Cash reserve represents about 25% of the total value
with 75% being invested. Surely the old adage about the relationship between Risk and Reward shows here.
Better rewards, but with higher risk.

SUMMARY

AIM takes time to show its benefit. Surely when Mr. Lichello devised the AIM algorithm in 1977 he could
not have envisioned the massive BULL run we've had since 1982. If he had, he might have conceived of
Split SAFE and something similar to the VEALIE. AIM "by the book" worried its way to being a steady
provider, but only at the sacrifice of lessened overall performance.

AIM with the use of Split SAFE does make better purchasing decisions throughout the history and does stay
more fully invested. It out-performs "by the book" substantially and still has incredible safety. This migh be
right for the individual that may need occasional money from their Cash Reserve during retirement, but
doesn't have to depend upon it for livelyhood. This example provided more total growth and more total cash,
but the cash reserve fluctuates more frequently.

The relationship between Risk and Reward again shows up in the "VEALIE only" example. Although not the
best purchasing methods were used, just keeping a "realistic" Cash Reserve relative to the equity's value
provided overall benefit. Note that the drop in price in 1998 wasn't enough to trigger a single Buy Market
Order!

Finally, by improving the AIM Warehouse's purchasing department (Split SAFE) and inventory control
(VEALIE) we see that very good long term results can be achieved. The rewards are greater, but the total
value at risk is usually higher than any other example. Risk vs Reward has to always be part of our
understanding as investors.

The VEALIE is easily used with stocks or mutual funds. The idea is straight forward and can be used with a
fixed percentage of Cash as a maximum or a "moving target" like the Idiot Wave. We choose the cash reserve
limits (as a percent of total portf. value) that would satisfy AIM's buying needs in a "worst case" situation.
The Split SAFE concept is easy to understand and works well with Go diversified mutual
FEBfunds. I've use +10%
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Sell SAFE with more aggressive funds and +8% with milder ones. For Sector Funds, a quick simulation done ❎
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with the fund's history will be quite instructive as to where you should set
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SAFE values. Althoughf
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used Split SAFE with some individual stocks, most of my holdings use Mr. Lichello's 10% for both buying
and selling. In some cases where the stock is on a rapid growth cycle, I've shifted to +20% Sell SAFE and
used 0.0% Buy SAFE. This will give me about the same size "Hold Zone" between buys and sells as Mr.
Lichello's method but puts the emphasis on accumulation. Please be cautious with Split SAFE and individual
stocks. Back test using several different combinations and see what works with the stock.

There are very few changes that can be made to the AIM portfolio that will as easily and painlessly improve
its performance as these two. Please take some time to study the graphs to understand the Risk/Reward
relationship.

HISTORIES

All examples started with a total value of $10,000. AIM "by the book" started with 67% invested and 33% in
cash as did AIM with "Split SAFE." AIM with "VEALIES" and AIM with "Split SAFE and "VEALIES"
both started with 24% Cash Reserve and 76% invested in the fund. The 24% value was taken from the Idiot
Wave history for January of 1982 when the examples were started.

All examples were calculated as though part of a tax sheltered retirement account. No current taxes are
reflected in the graphs as shown. Taxable accounts would in each case be diminished.

Interest on the Cash Reserve was accumulated at a 5% per year rate.

Some Sell trades were done to satisfy only that portion of the Market Order needed to bring the Cash
Reserve up to the current IDIOT WAVE recommendation. The "excess" of the Market order was treated as a
VEALIE.

Vitesse Semiconductor AIM Examples

The following graphs show a summary of various ways of handling an investment in Vitesse Semiconductor
for the period of late 1993 through mid-2000. This has been a marvelous investment, but not necessarily a
great stock for AIM's management. All in all we seem to have survived!

I think it's first important to make sure everyone knows what a 'vealie' is. It is a way to contain AIM's
enthusiasm for selling once we have reached a certain cash reserve level. It can be a "time of life" decision as
to whether it's useful or not. For those building a portfolio and diversifying, using one equity as a Cash Cow
to start other accounts would probably keep them from using the 'vealie.' However, for those of us who are
content with the number of equities we have, we want to stay with our "winners" as long as they win.

Assuming we've reached 50% Cash Reserve for stocks (33% for diversified mutual funds), the 'vealie' is
structured in a similar fashion to AIM's BUY function. It takes half the value of the suggested SALE and
adds it to Portfolio Control thereby negating all or most of the Sell Market Order and raising the next Buy
Market Order price just slightly. It is NOT to be used when we're strapped for CASH after a severe price
decline. That would be AIM suicide!

So, let's assume that we have a $10,000 portfolio that's now 50% cash reserve. AIM's instructing us to sell
5% of our remaining holdings, but that will take us over the 50% Cash mark.

$5000 Invested
$5000 Cash Reserve
4319 Portfolio Control
431 Safe
$250 AIM Sell order (5% of equity)
The 'vealie' would add 125 to Portfolio Control to bring it to 4443. This
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raises both the buy👤and
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sell points. It also keeps you more deeply invested in this equity than you would have been. ❎
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How does this work in real life? I've used the most successful individual stock that I've purchased as an
example. The reason is that a cyclical non-growth stock never would use a 'vealie' even while benefiting
from AIM's activity (Mr. Lichello's example). The 'vealie' was developed for raging bull markets and stocks.
I've chosen Vitesse Semiconductor (VTSS) for this analysis. Here's my actual performance:
http://www.aim-users.com/vtss.htm
(a modest 2300+% total return)

VTSS isn't a great AIM stock, but it's been a great investment. If I can point to a single reason to buy
Companies and not stock charts, VTSS would be it. A great company in a great industry during a great
period of history. Why then is it a bad AIM stock? It almost NEVER goes down in price!! AIM has very few
buying opportunities.

What a shame!

I studied the history from November 1993 when I first invested in Vitesse. It is constructed as a "once a
month" example. I used the first price of the month in my records from my own history rather than some
arbitrary Monday or Friday. In other words, I've not tried to "optimize" the actual prices for best
performance. For the 'vealie', I let the Cash Reserve rise to no higher than 52% with any SALE. It always
sold if the resulting Sale brought the Cash Reserve to 50% or less. In some cases, I split large orders into
partial 'vealies' and partial Sales. The Sale would bring the cash to 50% and I'd use the 'vealie' for the
remainder of the suggested Market Order.

The categories are:

AIM "By the Book" (AIM BTB)

AIM w/ Split SAFE - 0.0% Buy, 10% Sell (AIM SS)
AIM w/ the 'vealie' (AIM V)
AIM w/ Split SAFE and 'vealie (AIM SSV)

The analysis is

Total Return
% of portf. invested
Return On Capital At Risk

The starting point is

8694 Shares @ $0.7708/share (split adjusted)

$3298 Cash Reserve
0.05% annual interest
$335 minimum trade size

The end point has the Share Price at $67-3/8! It would have taken a strong Buy&Hold; stomach to have
stayed with this the whole way! 8641% GAIN would have been Mr. Buynhold's return!

Here's the way it stacks up:

Performance.........AIM BTB.....AIM SS........AIM V........AIM SSV

Total Return...........556%.........652%............2040%..........2146%
Ave. % Invested........35%...........36%..............56%............56%
R.O.C.A.R.............1589%.........1811%............3643%..........3832%
$10,000 grew to...$65,577.......$75,190........$213,950.......$224,604
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So, the Split SAFE method didn't do much good here because so few buying opportunities presented
themselves. Further, since the price recovered so quickly in each case, there was no chance for follow-up
buying the next month. No chance for AIM to pump the Buy Brakes.

It fell on the 'vealie' to significantly improve the overall performance. Note that not only total return
improved, but ROCAR. We all know we can improve return with greater risk, but in this case, the 'vealie'
shows clearly superior results with limited risk.

At no time in any example did the simulations run out of cash. There was always plenty of buying power left
in reserve. Not everyone will want to use the 'vealie' concept, and not all stocks will benefit from its use.
However, I think it would be a mistake not to include the capability of changing the Portfolio Control level
manually.

Remember that in this study AIM started at 67% invested and just 33% Cash. In the BTB example it only
averaged 35% invested and 65% CASH! I don't think many people will stay with AIM if they end up
handicapped this way.

I know that this next item will get attention! I also ran the same simulation, but using my own weekly data
since I started my VTSS account. We've all heard the arguments for and against increasing the frequency of
updating AIM. This is just one example, but it is worth noting:

Performance............AIM BTB........AIM SS........AIM SSV

Total Return............865%..........1712%..........2973%
Ave. % Invested..........32%...........41%............54%
R.O.C.A.R..............2703%..........4133%..........5505%
$10,000 grew to......$96,501........$181,237........$307,272
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(This graphic is at the limits of viewing with weekly data for seven years. I appologize!)

Because AIM had the chance to do follow-up buying in the next weekly period without missed opportunity,
it benefited the entire range of tests. In this series of tests, only AIM SSV ran out of cash, and only when the
price/share fell from $106 to $41 about a month ago. What a wonderful time to be 100% invested!

My analysis of this second example is that every SALE increases the likelihood of additional buying and
every BUY increases the likelihood of profitable selling. Because of the rapid price movements and reverses,
AIM benefited from more frequent updates and activity. (frequency and amplitude)

Read more about -- Split SAFE tm and & VEALIE tm--

Read complete Definitions of Split SAFE tm and the VEALIE tm
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