Maximizing The Aim Investment System: A Guide

The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE) that helps smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility than the main LSE stock market.

AIM was launched in 1995 with ten companies and a combined market capitalization of about £82 million. Since then, it has helped more than 3,800 companies raise over £130 billion.

AIM is considered to be a more speculative and riskier investment that attracts investors with a larger risk appetite. The market is essentially self-regulated, with 'nominee advisors' or 'nomads' tasked with ensuring regulatory compliance.

AIM can be used with a stock or mutual fund portfolio. To calculate AIM's buy and sell quantities, you need to know two things: how much money you have invested in the portfolio and the current value of your portfolio.

For example, let's say you have a portfolio control (amount of initial investment) of 1,000 shares at $10 per share, for a total of $10,000. One month later, the stock price falls to $8, giving you a portfolio value of $8,000.

To calculate a buy order, add 10% to the current portfolio value ($8,000 x 1.10 = $8,800). Subtract this new value from the portfolio control ($10,000 - $8,800 = $1,200). A positive value indicates a buy signal, so in this case, AIM is telling you to buy 150 shares, equivalent to $1,200.

For a sell order, subtract 10% from the current portfolio value ($8,000 x 0.90 = $7,200). Subtract this new value from the portfolio control ($10,000 - $7,200 = -$2,800). A negative value indicates a sell signal, so AIM is telling you to sell 130 shares, equivalent to $1,300.

In both cases, AIM has you making the correct decision—buying when your portfolio value goes lower and selling when it goes higher. If AIM is strictly followed, it can be used to take much of the emotion out of investing.

How to use AIM to manage a small portfolio of multiple exchange-traded funds

Using the AIM system to manage a small portfolio of multiple exchange-traded funds (ETFs) is a relatively simple process. The AIM system, or the Automatic Investment Management system, is an algorithm that provides a logical system for managing your investments. It can be used with a stock or mutual fund portfolio and will instruct you on when and how much to buy or sell.

The first step is to calculate your buy and sell quantities. To do this, you need to know two things: how much money you have initially invested in the portfolio and the current value of your portfolio.

For example, let's say you initially invest $1,000 in 100 shares of stock at $10 per share, giving you a portfolio value of $10,000. One month later, the stock price falls to $8, giving you a new portfolio value of $8,000. To calculate your buy quantity, you would add 10% to the current portfolio value ($8,000 x 110% = $8,800), then subtract this value from your initial investment ($10,000 - $8,800 = $1,200). Since this value is positive, AIM is telling you to buy, and the number of shares you should buy is the equivalent of $1,200, or 150 shares.

Now, let's say the stock price rises to $13 the following month, giving you a new portfolio value of $13,000. To calculate your sell quantity, you would subtract 10% from the current portfolio value ($13,000 x 90% = $11,700), then subtract this value from your initial investment ($10,000 - $11,700 = -$1,700). Because this value is negative, AIM is telling you to sell, and the number of shares you should sell is the equivalent of $1,700, or 130 shares.

When using AIM with a portfolio of multiple ETFs, it is important to keep the buy/sell decisions separate for each ETF. In other words, do not "pool" all equity balances into a single decision point. However, you can pool all cash from the sale of shares into a single money market account to minimize the chance of running out of cash when buying opportunities arise.

For example, let's say you have a portfolio containing the State Street Select Sector SPDRs ETFs, which divide the S&P 500 into nine sectors: Consumer Discretionary, Consumer Staples, Energy, Financial, Health Care, Industrial, Materials, Technology, and Utilities. You initially invest $10,000, splitting it between any single ETF and the money market account, for a total of $90,000 in the portfolio. Over time, as you make buy and sell decisions using the AIM algorithm for each ETF, you can pool the cash from the sale of shares into a single money market account.

By using AIM to manage a small portfolio of multiple ETFs, you can improve your rate of return and reduce the risk of running out of cash.

How to use AIM to control a portfolio of all nine sector ETFs

The AIM investment system, or Automatic Investment Management, is a system for managing your investments, removing the emotion from investing by automatically telling you when to buy, sell, or do nothing. The system was created by Robert Lichello, who published a book in the late 1970s called 'How to Make $1,000,000 in the Stock Market—Automatically', which presents a stock market timing system.

AIM can be used with a stock or mutual fund portfolio, and will instruct you on when and how much to buy or sell. To calculate AIM's buy and sell quantities, you need to know two things: how much money you have invested in the portfolio and the current value of your portfolio.

The AIM system can be used to control a portfolio of all nine sector ETFs. In this scenario, it is important to keep the AIM buy/sell decisions separate for each equity holding; do not "pool" all equity balances into a single decision point. Pooling all cash from the sale of shares into a single money market account may help to minimize the chance of running out of cash when buying opportunities arise.

State Street Global Advisors sell ETFs that divide the S&P 500 into nine sectors: Consumer Discretionary, Consumer Staples, Energy, Financial, Health Care, Industrial, Materials, Technology, and Utilities. These nine ETFs can be the foundation of a hypothetical portfolio.

To keep things simple, all nine sector ETFs can be put into a single hypothetical portfolio. For this example, we will use an imaginary $10,000 and split it between any single ETF and the money market account, which means we will start with a total of $90,000 in the portfolio. We will also vary the amount initially invested in the ETFs.

The aggregated portfolios consistently outperformed the portfolio with a single S&P 500 ETF holding. Additionally, the only cash shortfall in the aggregated portfolio occurred when 80% of the money was invested in the equity portion. The risk of running out of cash was eliminated in the three-ETF AIM portfolio.

Based on the analytic results, it is possible to increase the rate of return using AIM to control a portfolio of all nine sector ETFs vs. an AIM portfolio with a single diversified ETF. However, by putting all nine sector ETFs into a single AIM portfolio, the high-performing ETFs are essentially "averaged out" with the lower-performing ETFs.

Further analysis reveals a set of three sector ETFs (Materials, Energy, and Industrial) that have a rate of return between 9.7% and 13.8%. If we put just these three ETFs in a single AIM portfolio, the rate of return jumps dramatically into the 8.9-12.3% range, which is a significant improvement.

How to use AIM to control a portfolio of just the three best sector ETFs

Using Robert Lichello's Automatic Investment Management (AIM) system, it is possible to control a portfolio of multiple exchange-traded funds (ETFs). The AIM system can be used to outperform a buy-and-hold investment strategy and to take the emotion out of investing in the stock market.

To keep things simple, the AIM buy/sell decisions should be kept separate for each equity holding; the pooling of all equity balances into a single decision point is not recommended. However, cash from the sale of shares can be pooled into a single money market account, minimising the chance of running out of cash when buying opportunities arise.

State Street Global Advisors sell ETFs that divide the S&P 500 into nine sectors: Consumer Discretionary, Consumer Staples, Energy, Financial, Health Care, Industrial, Materials, Technology, and Utilities. These nine ETFs can be used as the foundation of a hypothetical portfolio.

To illustrate how to use the AIM algorithm to control the buy and sell decisions in a single portfolio containing the nine sector ETFs, let's use an imaginary $10,000 and split it between any single ETF and the money market account, which means we will start with a total of $90,000 in the portfolio. We will also vary the amount initially invested in the ETFs.

The results of this analysis show that a portfolio of 9-sector ETFs performs better than a portfolio with a single broad market ETF. Additionally, the risk of running out of cash is reduced by pooling all cash from the sale of shares into a single money market account.

Further analysis reveals a set of three sector ETFs (Materials, Energy, and Industrial) that have a rate of return between 9.7% and 13.8%. If we put just these three ETFs in a single AIM portfolio, the rate of return jumps dramatically into the 8.9-12.3% range, which is a significant improvement.

We can conclude that it is possible to increase the rate of return using AIM to control a portfolio of all nine sector ETFs vs. an AIM portfolio with a single diversified ETF. However, by putting all nine sector ETFs into a single AIM portfolio, we have essentially averaged out the high-performing ETFs with the lower-performing ETFs.

Finally, the risk of running out of cash is eliminated in the 3-ETF AIM portfolio.

How to use AIM to trade in AIM shares

AIM, or the Alternative Investment Market, is a sub-market of the London Stock Exchange (LSE) that helps smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility than the main LSE stock market.

AIM is considered a more speculative investment forum due to its relaxed regulations compared to larger exchanges. The companies listed on AIM tend to be smaller and more highly speculative, in part due to AIM's relaxed regulations and listing requirements.

• Do your research: AIM is considered a risky market, so it's important to do your homework before investing. Some companies on AIM have never made a profit, while others have been paying regular dividends for years. It's crucial to carefully select which companies to invest in to avoid losing your money.
• Be prepared for volatility: AIM shares are known for their volatility, which can result in huge potential profits but also comes with a large downside risk. Be prepared for frequent trading opportunities and wild fluctuations in share prices.
• Consider using a broker: When dealing with AIM stocks, it's a good idea to contact your broker's dealing desk. They may be able to negotiate a better deal on your behalf.
• Don't rely solely on technical analysis: While technical analysis can be useful, it may not be the best approach for smaller companies, especially during a bear market. These companies are often influenced more by sentiment and herd instinct than technical indicators.
• Be cautious with stop losses: Spread betting companies may encourage the use of stop losses, but buying stops can lead to buying high and selling low. Consider other risk management strategies to protect your investments.
• Diversify your portfolio: Investing in AIM shares can provide diversification and potentially enhance the performance of your overall portfolio. Consider including a mix of AIM shares from different sectors to reduce risk.
• Consider using an AIM fund or investment trust: If you're a long-term investor, you may prefer to invest in an AIM fund or investment trust rather than individual AIM shares. These funds can provide exposure to AIM without the risks associated with individual companies.
• Monitor your investments regularly: AIM shares can be highly volatile, so it's important to monitor your investments regularly and be prepared to act quickly if needed.
• Understand the risks: AIM shares are considered ultra-high-risk investments. Be aware of the potential for dramatic crashes and the uncertain prospects of many AIM-listed companies.
• Seek professional advice: Consult with a financial adviser or broker who has experience in trading AIM shares. They can provide guidance on selecting companies, managing risk, and navigating the regulatory environment.

How to use AIM to trade in AIM ETFs

The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE) that is designed to help smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility than the main LSE stock market.

AIM is a specialised unit of the LSE that caters to smaller, more risky companies. Companies listed on AIM tend to be smaller and more highly speculative, in part due to AIM's relaxed regulations and listing requirements.

AIM is seen as a more speculative investment forum due to its relaxed regulations compared to larger exchanges. The regulation for companies listed on AIM is often referred to as light-touch regulation, as it is essentially a self-regulated market where nomads (nominee advisors) are tasked with adhering to broad guidelines.

There are no ETFs (Exchange Traded Funds) which seek to fully replicate AIM. However, there are alternatives to AIM tracker funds that have a similar investment profile. These include ETFs that track the performance of small-cap UK companies, such as the iShares MSCI UK Small Cap UCITS ETF and the Amundi Prime UK Mid and Small Cap UCITS ETF.

• Decide whether you want to trade or invest in AIM ETFs
• Create an account or log in and go to the trading platform
• Identify your opportunity
• Take steps to manage your risk
• Open and monitor your position

Additionally, you can practise trading AIM stocks and ETFs with a risk-free demo account.

Frequently asked questions