I Guarantee You Will
Buy Low Sell High
&
Make Money
Or Here Are the Customer's Yachts
By Jeffrey Weber
I Guarantee You Will
Buy Low Sell High
&
Make Money
Or Here Are the Customer's Yachts
By Jeffrey Weber
Copyright © 2011 by Jeffrey Weber
www.jjinvesting.com
E-mail:
jeffee13@hotmail.com
Webpage:
http://www.jjjinvesting.com
Smashwords Edition
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Other Books I've Written
-
My Only Crime Was Being Born – Volume 1
- My Only Crime Was
being Born – Volume 2
- My Only Crime Was being Born – Volume
3
You can find all three volumes of my
autobiography on
Smashword.com
http://www.smashword.com/books/view/99557
Disclaimer
My book is so with the
understanding that I am not engaging in giving you legal or
accounting services, just ideas. Specific investment question should
be addressed to a stockbroker, legal questions to a lawyer, and
accounting questions to a qualified accountant.
I specifically disclaim any liability, loss, or risk, personal or otherwise, which is incurred as a consequence of any of the contents of this book. Likewise you get to keep all profit you make from the use of this book; I don't get any of them.
To my wonderful honey – bunny (alias lovely wife Judy) who has always been there for me and always will be there for me.
First of all I'd like to thank Smashword for giving budding authors like me a chance to get an e-book published for free and just split the royalties. They let you publish e-books for free which is well within my budget. And I'll thank anybody else from Kindle to Apple to Shelley that helps me sell some of my e-books.
Of course I can't ignore my wonderful wife Judy; again she rates more than just being listed in the dedication. My wonderful wife Judy has been there every step of the way for me and helped me through many dark and difficult times I truly appreciate all the fine things she's done for me, the love she has for me, the love she has for our daughter and granddaughter, and the hard work she does, I want to give her the best possible life.
Table of Contents
Authors
Acknowledgments
Foreword
Introduction
1
How to Buy and Sell – Picking a Stockbroker
2
Mechanics of Buying and Selling
2A
AIM Strategy for a Bear Market
3
Philosophy of Success
4
Investment Books for Fun & Profit
5
Seven Rules for Success in the Stock Market
6
How I’m Doing
7
The Good, the Better, the Best
8
How to Select the Right Stocks
9
Conservative Strategy
10
Semi-Aggressive Strategy
11
Cash Combined in One Account
12
Why the System Works
13
Miscellaneous Ways to Check on Stocks
14
How to Handle Taxes from Your Profits
15
The System for Large Investors
16
Small Investors Take Heart
17
Epilogue
18
Bonus
19
Jeff's Cardinal Rules for Investing
20
Simple Option Strategies
21
How to use LEAPs with or without AIM
22
How to use LEAPs in a Severe Bear Market
23
Using ETF's with AIM
24
Right Ratio for Shares & Cash
25
How to Find Investments to Consider
I would like to thank and complement Mr. Robert Lichello, author of How to Make $1,000,000 in the Stock Market Automatically who devised the investment system used in my book. I feel it is mandatory to read his book. I'm sure any good bookstore will have a copy or you could order a copy by looking on Amazon or one of the other websites. Mr. L's book planted a seed of inspiration to me like no other investment book I had ever read. I knew it was the way to invest. It so inspired me that I started this book and started investing under the system.
At the time I read the book, the stock market was going great guns in the middle of a big bull market. I had some spare time and started charting stocks I liked under the system to see how well the system worked on real stocks. From those humble beginnings, this book began. It was written under strange conditions about as far away as you can get from the major stock markets – in Seoul, Korea; Maffle, Belgium; and Weilerbach, Germany. The beauty of the system is that it doesn't even require you to be near the market to play. It's so simple and yet so profitable. My hats off to Mr. Lichello and I hope this book helps spread his fine system to an even wider audience.
I wish to make clear that while the system is Mr. Lichello's, the ideas about using it in this book are my own. If you can think of some way to improve on my ideas, I'd be glad to give you credit in a future edition. And now I've come full circle I've gone from having a printed book for the last 20 years that I've been revising constantly to an e-book version. Here is your future edition, I've added information on how to adapt AIM for bear markets, added the latest list of online brokers and many other subtle changes. But the heart of the book remains the same because it is it is a strong heart, capable of handling the job AIM gives it in bull and now bear times.
My original book was printed at Kinko's, now called Kinko's/FedEx using a spiral binding on 8.5 x 11" paper or the traditional letter-size paper. This was done because I have many spreadsheets and other information that needed to be printed in large size so you would be able to read it. Obviously I can't include the spreadsheets in this e-book version because it will appear so small as to be unreadable. So I am not including the spreadsheets in the actual e-book edition.
However anybody who buys my e-book can e-mail me and will receive for free the full size 8.5 x 11 Adobe Acrobat version of my book that will have all of the spreadsheets so that you can go to the particular Chapter and see the spreadsheets that I'm talking about in the e-book. Once you buy this e-book, just e-mail me at jeffee13@hotmail.com and tell me you have bought my e-book; please send me the free Adobe Acrobat version with the spreadsheets and I will be very happy to send it to you at no charge.
I wrote this book to help all investors – big and small – make money. The simple, easy to learn system will show you an investment method you can use for life. It only takes 15 – 30 minutes a month and should average 20% – 30% a year over the long haul. It's all explained in Chapter 2.
In addition to showing you the AIM system, I will show you how to choose a stockbroker for buying and selling under the AIM system. To help you pick the best stocks, I offer a monthly HTML newsletter. See my flyer in this book for further details. Anybody who buys a copy of my e-book will receive for free a one-year subscription to my monthly investing newsletter that shows the best stocks, ETF's, closed-end funds, and LEAPs for the AIM system. Again when you buy a copy of this e-book, just e-mail me at jeffee13@hotmail.com and I will add your name to my monthly subscriber list for my newsletter.
You will find different strategies ranging from very conservative to highly risky that you can use with the system. You'll find a strategy you'll feel comfortable with. Please read the entire book and I think you'll agree that I offer a simple, easy to learn, quick method to make the most from your hard-earned investment dollars. And it doesn't take very much money to get started as you'll see. If you have any questions, I'll be glad to try and answer them. Please e-mail me. Good luck with your investing.
(Note: I originally wrote this book many years ago when Merrill Lynch Blueprint was the only way the small investor could get a break on commissions. I decided to keep the information on Blueprint even though as you'll see later on, there are a lot of online brokers out there with very low commissions. I guess I'm nostalgic.)
There is an easy way for the small investor to play this investing system. The easy way is with the Merrill Lynch Blueprint Program. The Blueprint Program, formerly called the Sharebuilder program, is ideally suited for us, the small investor. Briefly the Blueprint program allows the investor to buy stocks and other investments at low commissions through our branch of Merrill Lynch, their "discount broker."
Merrill Lynch has over 1 million Blueprint customers. The great advantage of Blueprint is that it allows you to buy and sell as little as $100 worth of stock (I now recommend selling at higher amounts than $100 worth and would be happy to recommend the proper amount you should use with AIM to buy and sell based on how much you are investing in each individual investment as my system recommends, at very low commissions.)
Here's how Merrill Lynch describes Blueprint:
It's a convenient and inexpensive way to build your investment portfolio of stocks, mutual funds, and precious metals. More than 1 million people are building shares in their future and preserving the purchasing power of their dollars by participating in the Blueprint Program. Besides helping increase assets, Blueprint offers these benefits:
Small incremental investments in the securities you select allows you to build your portfolio over time as you invest in stocks, mutual funds, and precious metals. You have an opportunity to buy full and fractional shares because you invest by the dollar, not the share amount. And that is exactly what you are going to do when you learn AIM you're going to buy and sell based on the dollar amount of the buy in the sell and not on a specific number of shares. The Blueprint program will buy you shares out to four decimal places. For example your account could show 78.9856 shares. This is a tremendous benefit to the small investor. Investment alternatives allow you to diversify your portfolio among thousands of stocks and closed-end funds (later on you'll see I love closed-end funds for AIM investors who want to play AIM and yet get high monthly or quarterly dividends) listed on the New York, American and over-the-counter markets or NASDAQ.
Reduced brokerage fees on securities provide substantial savings off the regular Merrill Lynch commission charges for stocks. When you purchase stocks through the Blueprint program, you can take advantage of transaction fees up to 55% less than regular Merrill Lynch rates. Below are the Blueprint rates as of April 1988: (compare the "discount commission rates" in 1988 when we didn't have computers and online trading, to what the commissions are today; there is no comparison, commissions have gotten substantially cheaper to the point where AIM is even better system than when Mr. Lichello invented it because back then any commissions were much higher. Now you can safely trade even small amounts at extremely low commission rates.
Transaction amount – Blueprint Commissions:
See how much cheaper current commissions are!! And no limits on dollar amounts of your trades.
$0 to $125 - $12.50
$125 to $200 – 10%
$200.01 to $500 – 5% plus $10
$500.01 to $1,000 – 1.5% plus $27.50
$1,001.01 to $5,000 – 1.2% plus $30.50
$5,000.01 to $7,500 – 1.15% plus $39.50
$7,500.01 and up – Regular rates
(All these rates are very high compared to today’s commission rates of less than $10 a trade)
Blueprint also charges $3.85 as a transaction fee for all trades and now charges $30 a year for account maintenance. There are no charges for Ready Asset, (money market) transactions.
The basic reason that Blueprint is better for us small investors is that all brokers including discount brokers have a minimum commission. The regular Merrill Lynch minimum commission (not Blueprint) in August 1984 when I bought 100 shares of our $4.50 stock was $40. A comparison of several discount brokers from 1984 showed that the minimum commission was around $30 or higher. Also some discount brokers only dealt in round lots (100 shares.)
For a small investor, Blueprint is perfect. If you look at the various charts throughout this book, you'll see that our buys and sells our small most of the time. Blueprint is an easy and inexpensive way to make them.
You always have immediate access to your investments under Blueprint. You may change from one investment to another any time. If you wish to buy or sell, Blueprint is only a toll-free (sorry only in the United States), and Blueprint has another advantage... (Merrill Lynch continues on but I stopped.)
Other discount brokers
Blueprint is a fine inexpensive way to play the system but it's not the only game in town (actually Blueprint doesn't exist anymore!.) There are other discount brokers out there. For investors to start with larger sums (for example $10,000 per stock) the savings can be substantial. All the charts in this book use Blueprint commissions; if we had paid less than commissions by using another discount broker, our commissions would have been less and our profits more.
Below are the current low commissions for several brokers – one broker – Options Xpress – specializes in options trading.
Brokers on the Web
Note: the rates you see below were written at some point in the past and I'm not sure if they're still the current rates. I'm sure the rates are pretty similar or even lower than what I put down here. You can always go to their website and check out for yourself what the current rates are. I don't want to be the one to tell you should only go to this broker but I have dealt with TD Ameritrade for years and found them to be an excellent stockbroker that offers many features including free Standard and Poor Reports and other reports that let you do research on various stocks that you're considering buying. They might not be the cheapest one out there but their commission rates are still very low, below $10 a trade.
The computer age comes to investing. Now you can do your buying and selling by computer over the Internet. And now you're not even limited to a computer anymore; you can do your buying and selling from your smart phone, iPad or who knows; soon maybe you're just be able to talk to your wrist and make a buy or sell sometime in the future. Technology is amazing and it is helped us investors be able to find a wealth of information very quickly and very easily that I will talk about throughout this book about just how easy it is to find investing information that when I originally wrote this book didn't even exist.
Many stockbrokers and subsidiaries of major brokers offer trading via computer. Most brokers are on the web which means everybody can access them.
I don't have any rating for these brokers. Barron’s, a fine financial weekly newspaper, regularly rates stockbrokers and keeps you up-to-date on commission rates. I don't get any commissions from Barron’s but I highly recommend that you get a print subscription which also includes a free online subscription. They will talk about many fine stocks and other investments that you could use with AIM or in other investing strategies. You should remember we are looking for low – cost brokers. If you see a low – priced broker, you can bet they offer even more services than full commission brokers used to offer many years ago. You get all the bells and whistles with low-cost brokers that you used to get with full commission brokers. Competition is fierce and companies know that prices are determined in and whether an investor will open an account with a particular broker so they all fight to keep their commissions as low as possible and that benefits you the investor.
Below are online brokers you can check out. I tried to put the necessary information you need to check them out.
Online brokers
Ameritrade - $9.95 a trade – http://www.ameritrade.com
Cyber Trader - $9.95 a trade – http://www.cybertrader.com
E-Trade - $6.99 a trade – http://etrade.com
Fidelity – Gold $8.00, $19.95 Bronze – http://www.fidelity.com
InterActive Brokers – up to 100 shares $1.00, up to 1,000 shares $5.00
http://www.interactivebrokers.com/index.html
Charles Schwab - $9.95 – $12.95 a trade – http://www.schwab.com
SieberNet – $14.95 a trade – http://www.siebernet.com
TD Waterhouse - $9.99 a trade – http://www.ameritrade.com
Terra Nova - $5.00 a trade – http://www.terranova.com
Wall St. Electronics - $9.99 a trade – http://wallstreete.com
Scott Trade - $7.00 a trade – http://www.scotttrade.com
Options Xpress - $15.00 for 10 option contracts; $14.95 stock trades http://wwwoptionsxpress.com
Chapter 2
The Mechanics of Buying and Selling
Now for how to buy, sell or do nothing under the (Automatic Investment Management) AIM system. This is an important, probably the most important chapter of the book. You must thoroughly understand and follow this to get the benefits from the AIM system. I'm going to go through it slowly and I want you not only to read and understand practice it with some stocks of your own until it becomes second nature. And it will! At first it might seem complicated, but it's really incredibly simple. And once you learn it you will be doing exactly the same thing every month but the results will be different. Some months the system will tell you to buy and it will tell you how much to buy or how many dollars’ worth of the investment to buy or how many dollars’ worth of the investment to sell or AIM may want you to do nothing because the price of the investment hasn't gone down or up enough for AIM to decide to make a buy or sell. Here's how to do it.
You will see below that I wrote this chapter a while ago. There still may be some old-fashioned investors don't like computers so this will appeal to them. For the rest of you I have created a Word version of the spreadsheet and you can easily do all of these calculations on an Excel or Word spreadsheet. And you can make it easier by putting in a few very simple formulas in some of the columns and will make your work even easier. Again when you buy my e-book, you will receive all of this information in the Adobe Acrobat version of my book for free and I will provide you with a free version of the spreadsheet for both stocks and LEAPs because the LEAP spreadsheet is a little bit different and you will get up many other fine free bonuses so it's a heck of a deal.
First you'll need to buy or get some 13 – column paper (this is the type of accounting spreadsheets on paper I first used when I went to work as an auditor with the U.S. Army in 1983 which was BC or before computers. Paper is very common accountant/auditor paper designed to write numbers on. Any business supply store will have or at least would have it many years ago; it's probably harder now to find. Again like I said you can easily do all of this on an Excel spreadsheet and I'm sure most of you will prefer to do it on an Excel spreadsheet then to do it with a pencil and piece of paper but for those old-fashioned people I will keep the explanation the same as I wrote it many years ago before computers came around.
Ask your business friends. National makes the paper I use, #45-813. It comes in pads. If you have a computer than any spreadsheet software could be used to set up the system you can find two excellent software programs that do AIM on my website – http://www.jjjinvesting.com
Now a quick explanation of what every column means before we go through two years of one stock and you see the system in action.
Remember like I will say frequently throughout this book, you will obtain all the spreadsheets from the Adobe Acrobat printed version of my book for free after you buy this e-book.
Column 1 DATE - the date becomes the month and year (for example 6/11.) You check your stock at least once a month or more often as you will see when I talk in my book, maybe even daily for some of the more volatile investments like LEAPs or leveraged ETF's. You will see in this example in Chapter 2, I am just going to be checking the stock monthly. And you will see just checking it monthly can still make you quite a nice profit. So 6/11 would be followed by 7/11, followed by 8/11 - I think you get the picture.
Column 2 REMARKS - here you will list things such as readjust stock/cash ratio, stock splits using different SAFE percent’s (10% is the normal SAFE amount as you'll see later on) but we will use different SAFE percent’s in bear markets.
Column 3 – SHARE PRICE - this is the closing price of one share as reported in the newspaper or the website for the day you’re checking. You can easily find daily prices at http://yahoo.com in the financial section or if you have an iPhone, all you have to do is click on the stocks application on the front of your phone and there you find the latest prices on any investments that you're interested in.
Column 4 – SHARE VALUE - this is the SHARE PRICE from column 3 multiplied by the number of SHARES OWNED which is found in column 8.
Column 5 SAFE – SAFE is an arbitrary 10% of the share value found in column 2. Thus if your SHARE VALUE is $5,000, your SAFE amount would be $500. You'll see how SAFE helps you from buying and selling too soon when we go through the actual example stock.
Column 6 – CASH - originally Robert Lichello said to use a ratio of 50% CASH and 50% shares when you start an AIM investment. So for example, if you started with $10,000, you would have $5,000 in stock, and $5,000 in CASH. I have found that we can vary the amount of cash in an AIM investment depending on the volatility of the investment. A quick example is on a LEAP which is a very volatile investment; you would always want to use a ratio of 50% CASH and 50% LEAPs. And on a closed-end fund that you buy for income, you can safely use a ratio of one third CASH and two thirds closed-end fund shares that would mean on a $10,000 investment, you could own $6,677 worth of closed-end fund shares and $3,333 for CASH. One disadvantage nowadays of keeping a great amount of cash in your broker’s money market account, is that money market accounts pay a very low interest rate usually less than 1% which means you're not earning very much on the money but having cash to buy shares at cheaper prices is an essential that will pay off for you later on when your stock or other investment goes down and you need to buy more shares. Your CASH total will go up or down every month depending on whether you're buying and selling and earning interest on your cash. Also I view it as optional if you want to deduct the cost of the commissions as you make buys and sells. Personally I wouldn't bother worrying about the commissions you make enough profits without really worrying about it.
You'll see that the AIM system is very conservative as most of your investment will go to CASH. If you have a buy, then Column 6 (CASH) –, Column 11 (MARKET ORDER BUY) X 1.005 (interest) equals next month's cash total. If you have a sell, then, Column 6 + Column 11 (MARKER ORDER (SELL) x 1.005 equals next month's cash total.
Column 7 – SHARES BOUGHT (SOLD) - After you make your monthly check of the stock or other investment price, you might be buying some shares, selling some shares or doing nothing. In this column you will record the number of shares you bought or sold for that particular day in time. If you did nothing, put – (dash) in the column. To arrive at the number of shares you bought or sold, you divide the dollar amount in column 11 (MARKET ORDER BOUGHT (SOLD) by the SHARE PRICE in column 3. For example, if the system tells you to sell $200 worth of stock and the stock is selling for $10 a share, then you sell 20 shares. Remember to put the ( ) around the sold stock to keep separate buy and sell transactions which are sharing the same column.
Column 8 – SHARES OWNED - This is the number of shares you currently own. This figure will constantly go up and down. If your stock splits, you would double the number of shares you own. Column 8 equals last month’s column 8 plus any shares you bought in the previous month or column 8 equals last month’s column 8 minus any shares sold in the previous month or day that you did AIM. If the previous month or day that you did AIM and AIM told you don't need to make any buys or sells then column 8 would be the same number of shares in the row just above the current row you're using.
Column 9 – PORTFOLIO CONTROL - Another important column. When you start, put a dollar amount equal to the amount of stock you bought (this is only a control number, no money involved with this column.) If you start with $1,000 worth of stock, your PORTFOLIO CONTROL amount/number is also 1,000. After your initial injection of money, PORTFOLIO CONTROL will only change if you buy more stock. Every time you buy more stock, you add half the amount you bought to your PORTFOLIO CONTROL total. For example, the system tells you to buy $400 worth of stock; you add $200 to your prior PORTFOLIO CONTROL total. If no buy, then column 9 is the same as the prior month.
Column 10 – BUY (SELL) ADVICE - Every month you look at your SHARE VALUE (column 4) and PORTFOLIO CONTROL.) If your SHARE VALUE is higher, you put that figure on top; if you're PORTFOLIO CONTROL amount is higher, you put that on top. For example: if your SHARE VALUE is $5,000 and your PORTFOLIO CONTROL amount is higher, you put PORTFOLIO CONTROL on top. For example: if you're SHARE VALUE IS $5,000 and your PORTFOLIO CONTROL is $3,000 then you would put the higher value on top like this:
Or if PORTFOLIO CONTROL is higher:
Column 11 – MARKET ORDER BUY (SELL) - this is the column that tells you whether you make an order or not. You take the amount from column 10, BUY (SELL) ADVICE, and subtract out the SAFE (column 5) amount. If the amount is over $300 (this is my new rule of thumb for determining when you make actual buys or sells.) This means you go online and tell your broker that you want to buy or sell the dollar amount of your MARKET ORDER. If you have a sell order, you have to figure out how many shares you must sell (column 11 divided by column 3, SHARE PRICE) and tell your broker to sell that many shares. For example, if your market order was to sell $300 worth of $8.10 stock, then you would tell your broker to sell 37 shares. You would do the same exact thing if it's a buy order, you divide the dollar amount of the buy order by the current price of the stock and that determines how many shares you buy. Always remember investing is an art and not a science, so if the AIM system tells you to buy 37 shares, then you can easily round that off to buy 40 shares and everything will work fine.
COLUMN 12 – 6% INTEREST - this is the amount of interest earned by your cash total from column 6. The .005 is 1/12 of 6% or the amount of interest you earn in one month. I picked 6% because it's easy to work with an overlong period of time and is a fair average of the interest rate for money market funds over the long-term and it keeps things simple – monthly interest is always one half of 1%. I know right now that interest amount seems very high compared to what money market funds are paying but remember we are in this for the long haul and if you play AIM over the next 20-30 years it will average out to 6% interest as a fair number of use.
Column 13 – PORTFOLIO VALUE/TOTAL - Add the value of your CASH, column 6 + column 4, the value of your stock or other investment and you have the total current value of your investment. You will notice one nice thing about the AIM spreadsheet. Once you start with the stock you see exactly what you're starting amount is in the very first row when you look at PORTFOLIO TOTAL. In this example we are starting with a PORTFOLIO TOTAL of $10,000.
So when you compare PORTFOLIO TOTALs in the future rows, you can easily see exactly what your status is, if the PORTFOLIO TOTAL is higher than $10,000 then you are ahead or profitable. If the PORTFOLIO TOTAL is less than $10,000, you currently have a "paper loss". All that means is that the stock or other investment is cheaper than when you originally bought it, and possibly AIM is telling you to buy more shares of this cheap stock so when it turns around and goes higher later on you will own more shares that will go up in value and that will increase your profits.
Now I will go through an actual stock and show you just how easy it is. Get your pencil, calculator, and 13 – column paper or your Excel spreadsheet. Write all the headings in the proper columns. Remember you will get a copy of my book in the Adobe Acrobat version that will have the spreadsheet illustrated to make it easier for you to understand. Now write the name of the stock, for this example I picked Claire’s Stores, see the chart at the end of this Chapter in the Adobe Acrobat version of the book. Then below the name list the stock exchange, NYSE equals the New York Stock Exchange. The first month in our example is June 1994 (6/94), write that in your date column. Then we are going to imagine that we have $10,000 to invest. Having a calculator will make your figuring easier. Now let's start with June 1994.
$ • $ • $
JUNE 1994
When you look at your Adobe Acrobat version you will see a very nice Excel example of exactly how the top of your spreadsheet should look.
We start with $10,000 to invest. First we look at the price of the stock in the newspaper or on the website. A great website to look up stock prices is Yahoo Finance on you have to do is type in the symbol and you'll see exactly what the current price of any stock or other investment is. When you actually buy your stock or other investment, you'll have to wait to get your statement to see what the actual price was. Stock prices move quickly so you may have put in an online order to say buy Claire’s Stores and Yahoo told you the price was $10.25. You might find when you actually buy it maybe you bought the stock at $10.20 or $10.30 so that is the price you would want to put down when you find that your actual buy price. Our stock was selling for $10.25. Write that in column 3. Our first share value will be 2/3 of our $10,000 or $6,700 rounded off. Write $6,700 in column 4. In this example you see I used the liberal idea of two thirds stock and one third cash. Based on the investment you are in; I may recommend that you go 50% cash and 50% stock. It all depends on the volatility of the investment.
Then in column 5, $670 because SAFE is always 10% of the SHARE VALUE in column 4. Then right $3,300 in column 6 because you always start with two thirds of your money in stock and one third in cash on a conservative investment. In column 8 you write the number of shares you own. This is figured by dividing SHARE VALUE in column 4 by the SHARE PRICE – in column 3 - $10.25 equals 654 shares. Always round off, if you get 653.9, then 654 shares, if 653.3, then 653 shares. Then in column 9 PORTFOLIO CONTROL, put in the same number as you had in column 4, SHARE VALUE, 6,700.
Column 10 doesn't come into play yet, and column 11 doesn't either. You haven't earned any interest yet, so column 12 is blank also. Now add up the value of the stock you bought in column 4 and the amount of cash in column 6 and you have your total for PORTFOLIO VALUE. Put $6,700 + $3,300 equals $10,000. Now let me show you how simple and profitable the system will be for you. Remember to reinvest all dividends into your money market account. Just tell your broker when you open your account that you always want any dividends placed into your money market account and you do not want to buy additional shares or fractions of shares with any dividends you receive.
$ • $ • $
JULY 1994
Now how to use the system in the real world. On July 1 or thereabouts, you pick up your newspaper or look on your website. You look under the New York Stock Exchange and find Claire’s Stores. From now on I'm just going to say you look on your website because when I wrote this, newspapers were a lot greater source of stock market information than they are today. Today everything you want is either on a website or your iPhone on your iPad etc. so now on we would just say we look it up on the web. My new iPhone has this great little feature; all I have to do is press the stock market app on the very opening screen and I can find out all the information on stock prices you ever dreamed of. Once you type the symbol in, you can always find any symbol by going to Yahoo Finance. At http://www.barrons.com and going down to the bottom and opening up either the New York or NASDAQ stock exchange going to the first letter of the stocks name scrolling down and you will see the symbol right next to the name of the stock.
We find Claire’s Stores and see that the price on July 1 is $10 which we write in column 3. Did you remember to put July, 94, - 7/94, in the date column? Now go to column 8 for July 94. Look above in column 8 and you will see you owned 654 shares in June and you didn't buy or sell any in column 7. This is why you leave column 7 blank in the first month. You still own 654 shares. Write 654 in column 8 for July 94. Also your PORTFOLIO CONTROL amount is still the same (you didn't buy anything in addition to the opening buy in the first month, when you opened your account) so write 6,700 in column 9. Now multiply the number of shares owned (654) by the share price ($10) and you have your SHARE VALUE for column 4. Now CASH, you'll notice, has grown from $3,300 to $3,317. This is because you earned $17 interest which you write in column 12. If you had bought or sold stocks the preceding month, this would have also affected cash this month.
Now you take your two key amounts – SHARE VALUE and PORTFOLIO CONTROL and look at them. Which is higher? PORTFOLIO CONTROL is higher (6,700) than SHARE VALUE (6,540). Since PORTFOLIO CONTROL is higher, put PORTFOLIO CONTROL on top. You'll be seeing this chart every month. Once you start doing this, you won't need the chart, but it's a good way to learn.
You now have a potential buy for $160 but it's only potential. Now look at the SAFE amount in column 5 and you find that it is 654 which is higher than your buyer advice in column 10. So you put zero in column 11, MARKET ORDER BUY because your signal isn’t strong enough to give you a market order yet. Put a – in column 7 since you won’t be buying or selling any stock this month. Be patient the system doesn't want you to sell or buy too soon. You'll get plenty of chances. Now all you have to do is figure column 13, PORTFOLIO VALUE. You remember, add column 4, SHARE VALUE and column 6, CASH and you have the current value of your investment. This month it's $6,540 + $3,317 = $9,857. If the stock goes up in price, you'll have a potential sell and if it goes down, a potential buy.
$ • $ • $
AUGUST 1994
Now for August 94. I'll be shorter in my explanations and you'll see you will still understand because you did the same thing every month. While every month is done the same, the outcome can be quite different.
First look up the price of Claire's stock. Claire's price is $12.37. Write in column 3. Then multiply the number of shares owned (still 654 shares since you didn't buy or sell any last month) by the price of one share and that gives you a SHARE VALUE of $8,093. SAFE is always 10% so write 809 in column 5. Again the only thing that affected CASH is INTEREST; you earned another $17. So write $17 in column 12 and add $17 to your CASH. You now have $3,334 in CASH. Since you didn't buy any stock last month, PORTFOLIO CONTROL stays the same at 6,700. Again the magic two numbers, SHARE VALUE and PORTFOLIO CONTROL. Again since SHARE VALUE is higher put that on top. Since SHARE VALUE is higher, you have a potential (sell) signal, now write the higher amount SHARE VALUE on top:
You should be writing all these figures on your sample spreadsheet the same as the illustration at the end of the Chapter shows. Again you will find all of these Excel spreadsheets with all of the information when you look at the printed version of my book in Adobe Acrobat that I will send you for free. At the end of this Chapter in the Adobe Acrobat book is a blank sheet you can photocopy and use.
As you can see, you're getting your first sell order. Now divide $584 by the SHARE PRICE ($12.37) and you have 47 shares to sell. Write (47) in SHARES BOUGHT (SOLD) column. Now finish your months’ work by figuring out your PORTFOLIO VALUE. It's ($8,093) + column 6 ($3,334) = $11,427.
You’re ahead $1,427 but better things are still ahead.
$ • $ • $
SEPTEMBER 1994
Now even quicker because I'm sure you understand how simple and repetitive the system is and soon you'll see its power. Try doing September 94 on your own. Remember to start by looking up the price of Claire’s Stores. Since this is an example, of course you can't but soon you'll be doing your own stocks and this will be the first step.
Okay, the price has risen and is now $12.50. Write down $12.50 and then fill in column 9 that didn't change since no buying last month. But column 8, SHARES OWNED, did change. We sold 47 shares last month. So subtract 47 from the column 8 total from the prior month (654 - 47 = 607). Write 607 in column 8, SHARES OWNED. Now figure column 6 CASH. You started with $3,334 and must add the $584 you got from selling the stock. So $3,334+ $584 = $3,918 + $20 for INTEREST = $3,938, WRITE in column 6, CASH. Write $20 in column 12, INTEREST.
Then compare column 4 with column 9 and see which is higher. SHARE VALUE is still higher $7,588 To PORTFOLIO CONTROL’s 6,700. You can figure you have a potential (SELL) of $888 that you write in column 10 in ( ). You glance at SAFE and see its lower than your potential (SELL) ADVICE (888-758 = 130), so you write (130) in column 11, MARKET ORDER (SELL) BUY. You have a sell. Now divide $130 by $12.50 and you find you sold 10 shares. In this example I am making any sells over $100. Many years later I have decided that is too low because it generates too many commissions and so I've basically raised the amount of any buy or sell to a minimum of $300 so you would pay fewer commissions and sell at higher prices and buy at lower prices. Write (10) in column 7, SHARES BOUGHT (SOLD). Add up the value of your portfolio in column 13 – remember it's CASH + SHARE VALUE. Your PORTFOLIO VALUE is $11,526.
$ • $ • $
OCTOBER 1994
Now October 94. Stock price is $11.00 (stock prices to go down). Again write the SHARES OWNED and PORTFOLIO CONTROL numbers in columns 8 and 9. Column 9, PORTFOLIO CONTROL hasn't changed since no buying but SHARES OWNED did change since we sold 10 shares. So go to last month's column 8 total and subtract 10 (607-10 = 597) and write that number in column 8. Now figure SHARE VALUE and you see it's less than $6,700. It's $6,567 to be exact. SAFE is always 10% of SHARE VALUE so fill that in. CASH again was affected by selling. You started with $3,938 and added $130 + $20 INTEREST = $4,088.
Now look at PORTFOLIO CONTROL and it is higher than SHARE VALUE so put PORTFOLIO CONTROL on top, think P for purchase. You have BUY ADVICE of $133. Before you do anything, you still must compare BUY ADVICE to SAFE. SAFE is still going to cancel any market order. Did you remember not to put ( ) around zero in column 11? I don't bother putting ( ) around 0 in column 11, I just use a –. Again if you haven't given yourself $20 in INTEREST, add $20 to your CASH account and again add SHARE VALUE and CASH to obtain your PORTFOLIO VALUE. Your PORTFOLIO VALUE is $10,655.
Again all of this is going to see much easier when you're reading it while looking at the Adobe Acrobat version of my book which will show all of the Excel spreadsheet rows and columns that will make it much easier to follow what I am talking about.
$ • $ • $
NOVEMBER 1994
Now November 94 and the stock has risen a little. Remember the beauty of the system: buy low and sell high. Watch it work. Okay, SHARE PRICE has risen to $11.37. Write it in SHARE PRICE and number of SHARES OWNED and PORTFOLIO CONTROL, which didn't change since no buying last month. Now multiply number of shares 597 X SHARE PRICE $11.37 and your SHARE VALUE is $6,791. Again SAFE is 10% of SHARE VALUE or 679. CASH has earned another $20 of INTEREST, write that in column 12 and add the $20 to CASH total in col. 6. Look at SHARE VALUE and PORTFOLIO CONTROL and as you thought, SHARE VALUE is higher which could possibly signal a sell. Write SHARE VALUE on top and PORTFOLIO CONTROL below:
Now compare your (SELL) ADVICE to SAFE and you see that SAFE overrules any selling this month.
Again is $0 but we use a – instead of writing $0. Again finish off the month by figuring your PORTFOLIO VALUE: SHARE VALUE + CASH or $6,791 + $4,108 = $10,899 or your investment is up $899. Keep thinking long-haul.
$ • $ • $
DECEMBER 1994
Now December 94. Again look up the SHARE PRICE (its $11.75). Write it in column 3. Now go to column 8, SHARES OWNED and column 9, PORTFOLIO CONTROL; since you did nothing last month both stayed the same. Now business as usual.
Multiply the number of shares (597 X SHARE PRICE $11.75) and your SHARE VALUE is $7,015 write it in column 4. CASH was only affected by INTEREST so add $20 to this month's total and write $20 in column 12, INTEREST. Now compare PORTFOLIO CONTROL to SHARE VALUE. SHARE VALUE is $7,015 and bigger than PORTFOLIO CONTROL so you place it on top. Again remember P for purchase if PORTFOLIO CONTROL is on top and S for sell if SHARE VALUE is on top. Very simple. So do your calculations:
You do nothing. Then you figure PORTFOLIO VALUE. Remember how? See this is easy. You added SHARE VALUE of $7,015 + CASH of $4,128 = $11,143. You’re ahead $1,143.
$ • $ • $
JANUARY 1995
Now January 95. Again start with SHARE PRICE. It's $11.62. Now go to column 8, SHARES OWNED. Again you did no buying or selling so they stay the same.
Now back to column 4, SHARE VALUE is always the number of shares X SHARE PRICE. Multiply column 8,597 shares X SHARE PRICE. Your SHARE VALUE is $6,940. Again SAFE is 10% so write 694 in column 5. Now CASH, again only INTEREST affected cash so add $20 to the CASH total and put $20 in column 12. Write it in. Again compare PORTFOLIO CONTROL and SHARE VALUE:
You can safely ignore buy and sell orders under $300. Again figure out your PORTFOLIO VALUE – it's $11, 088. Easy isn't it. Keep checking your spreadsheet against mine and make sure the numbers agree. Remember to round off your number; you don't need to worry about cents (except for column 3, SHARE PRICE).
$ • $ • $
FEBRUARY 1995
Now February 95. SHARE PRICE has risen and is now $14.12, write that in column 3. Now go back to columns 8 and 9. Since you didn't buy or sell any stock last month, these amounts don't change. So write in 597 for number of SHARES OWNED and 6,700 and for PORTFOLIO CONTROL. Then figure out your SHARE VALUE (it's 597 X $14.12 = $8, 433). Write it in column 4. Again SAFE is 10% of column 4, so write in 843 in column 5. CASH is simple since you did no buying or selling; just add the INTEREST earned $20 to last month's total and write in your new total of $4,168. Again compare PORTFOLIO CONTROL to SHARE VALUE. By now your brain should be telling you that since the SHARE PRICE rose, you probably have a sell. Again as you always do, put the largest amount on top:
Remember to write all the above amounts in their proper columns. Every column either has a number or a –; never will a column be blank. Meanwhile back at the spreadsheet.
Now you have a MARKET ORDER (SELL) for $890. All you have to do is divide $890 by the SHARE PRICE $14.12 and you find out you SOLD 63 shares. Put (63) shares in column 7 for February 95. Again finish off your month by figuring your PORTFOLIO VALUE. It's SHARE VALUE of $8,433 + CASH of $4,168 = $12,601.
Now try to imagine this for real. It's one thing to play quite another when it's for keeps, when it's your money. You got to work at being mentally tough when it comes to the hard, lean times of investing. For every peak you'll also find some valleys; always think for the long term. Study the history of the stock (Claire’s Stores) and you see those peaks and valleys. Look where you stand at the end and you'll have a grand view of those valleys from your peak.
$ • $ • $
MARCH 1995
Now March 95. SHARE PRICE has dropped to $12.62 share. Okay, put that SHARE PRICE in column 3 where it belongs. Now go to column 8, SHARES OWNED. Look at column 7, SHARES BOUGHT (SOLD) for last month and you remember you sold 63 shares. Subtract those 63 shares from the 597 you already had and write in your new total of 534 shares.
Okay, back to column 4. Your SHARE VALUE is $12.62 X your new number of shares (534) = $6,742. You should be thinking possible sell. Again put the larger amount on top:
Again remember to write all the amounts in their proper columns. Or type them all in your little old computer.
I forgot to figure cash so better late than never. Last month’s CASH was $4,168. So take $4,168 and add $890 for the stock you sold last month, that leaves $5,058 X 1.005 for INTEREST earned = $5,083, put in column 6. Now just figure PORTFOLIO VALUE which is SHARE VALUE $6,742 + CASH $5,083 = $11,825.
$ • $ • $
APRIL 1995
Onto April 95. SHARE PRICE is $13.12. Put in column 3 now go to column 8, SHARES OWNED and figure how many shares you own. Always check column 7 from the month before. If you see a – meaning you neither bought nor sold any shares, then you know you still have the same number of shares. Last month you know you did nothing, so you know your total stayed the same for SHARES OWNED & PORTFOLIO CONTROL.
The easy way to figure any month’s share total is to add columns 7 & 8 from the previous month if you bought and subtract column 7 from column 8 if you sold. So now you own 534 shares. So multiply 534 X the $13.12 SHARE PRICE and your SHARE VALUE is $7,009, write in column 4. SAFE is 700. Last month’s cash was $5,083. This $5,083 earned $25 INTEREST (column 12) so your ending CASH balance is $5,108, write in column 6. Repeat every month, look at PORTFOLIO CONTROL & SHARE VALUE.
SHARE VALUE is again higher:
Only thing left to do is figure your PORTFOLIO VALUE ($7,009 + $5,108 = $12,117).
$ • $ • $
MAY 1995
Onto May 95. SHARE PRICE is $13.87. Since you didn't buy or sell anything last month, SHARES OWNED AND PORTFOLIO CONTROL remained the same. SHARE VALUE is $7, 409 (534 X $13.87), SAFE is 740. CASH was only affected by INTEREST, so add the $26 INTEREST earned ($5,108 X 1.005 = $5,134). Again check PORTFOLIO CONTROL and SHARE VALUE and again PORTFOLIO CONTROL is lower so PORTFOLIO CONTROL goes on the bottom:
All that's left to figure is PORTFOLIO VALUE ($7,409 + $5,134 = $12,543.)
$ • $ • $
Readjusting Cash/Stock Ratio
We are going to do in an important step to increase our profits – readjust the cash/stock ratio. When we started out, we used 2/3 stock and 1/3 cash. Checking after one year, we find that the percentage of cash has increased. We want to take this excess cash and buy more stock with that. Our PORTFOLIO VALUE was $12,543. 1/3 of that is $4,139. Our current cash amount is $5,134 so: $5,134 - $4,139 = $995 of extra cash. We use that extra cash to buy the + 72 shares you see in the June 1995 spreadsheet entry. That's why you see (709) in BUY (SELL) ADVICE (actual BUY (SELL) ADVICE & BUY 995 in MARKET ORDER BUY. I wanted to show you what will do. Will fix things up next month.
$ • $ • $
JUNE 1995
Onto June 95. The explanations are becoming shorter because you're getting smarter and seeing how easy this is. The SHARE PRICE rises to $15.87 a share. Write it down and then do columns 8 and 9. Column 8, SHARES OWNED, will increase by the 72 shares we bought last month with the excess cash (534 + 72 = 606). Column 9, PORTFOLIO CONTROL increases BY 100% of the MARKET ORDER BUY amount of $995. Whenever we first buy or add additional money to the system, we increase PORTFOLIO CONTROL by 100% – not the usual 50%. Thus column 9 is 6,700 + 995 = 7,695.
SHARE VALUE is 606 X $15.87 = $9,620. SAFE is always 10% of SHARE VALUE so SAFE is 962. CASH was affected by readjusting our stock/cache ratio. We started with $5,134 - $995 excess cash + INTEREST of $21 = $4,160. PORTFOLIO CONTROL is again smaller:
You have a (SELL) MARKET ORDER. Divide $963 by the SHARE PRICE of $15.87 and you find that you sold (61) shares. Write in column 7. Then end the month by figuring your PORTFOLIO VALUE. $9,620 + $4,160 equals $13,780.
$ • $ • $
JULY 1995
Onto July 95. SHARE PRICE continues up and is $18.12 a share, a good improvement. Now go to column 8, SHARES OWNED and subtract the 61 shares you sold last month from the 606 shares you already owned and you now own 545 shares. That since you sold stock last month, you know PORTFOLIO CONTROL does not change. Now multiply your new SHARES OWNED total of 545 X the SHARE PRICE of $18.12 and SHARE VALUE is $9,878. SAFE is 987. CASH went up last month. You had $4,160 and sold $963; so new CASH total is $5,123 which earned $26 INTEREST so your new CASH total is $5,149, write it down.
You're continuously reducing your risk. You started with 654 shares and now own 479 shares. Divide the $1,196 by $18.12 and you find you sold (66) shares, write in column 7. Again the last thing you do is figure PORTFOLIO VALUE which is $9,878 + $5, 49 equals $15,027, your ahead better than 50% in just over a year!
$ • $ • $
AUGUST 1995
Onto August 95. SHARE PRICE is up to $19.50 PORTFOLIO CONTROL stayed the same, and SHARES OWNED decreased (545 – 66 = 479), so write them in. 479 X $19.50 = a SHARE VALUE of $9,341. SAFE is 934. CASH is $5,149+ $1,196 + $32 INTEREST, so your new total is $6,377. Again compare PORTFOLIO CONTROL and SHARE VALUE. SHARE VALUE is higher than PORTFOLIO CONTROL. If SHARE VALUE is higher than PORTFOLIO CONTROL, you have a sell signal. If SHARE VALUE is on top, think S for sell; if PORTFOLIO CONTROL is on top, think P for purchase, it's so simple. Your calculations look like this:
Divide $712 by the selling price and you find you sold (37) shares, write in column 7. Again figure your PORTFOLIO VALUE to end the month. It's $9,341 + $6,377 = $15,718.
$ • $ • $
SEPTEMBER 1995
Onto September 95. SHARE PRICE is $20.75. Okay, go to SHARES OWNED and PORTFOLIO CONTROL and you know since you sold last month, PORTFOLIO CONTROL stays the same and SHARES OWNED decreases by the number of shares sold. So copy in SHARES OWNED (479 – 37 = 442) and PORTFOLIO CONTROL is the same as it was last month. Now multiply 442 X $20.75 and your share value is $9,172. Looks good doesn't it? SAFE is 917 and CASH is $6,377 + $712 + $35 INTEREST and is now $7,124. Again compare PORTFOLIO CONTROL and SHARE VALUE, it's a pleasure. You know what to do:
Have you been remembering to put ( ) around SELL ADVICE and SELL MARKET ORDERS? It's important, go back to last month and check. Again, write the number of shares sold (560 divided by $20.75) = (27 in column 7). Now for a pleasant chore, figuring PORTFOLIO VALUE. Add $9,172 + $7,124 = $16,230.
$ • $ • $
OCTOBER 1995
Onto October 95. SHARE PRICE is $20.50. Go to column 8. Since you sold 27 shares last month, subtract 27 from the 442 shares you previously owned and now you own 415 shares. Write it in. Now SHARE VALUE is 415 X $20.50 = $8,508. SAFE is 850. CASH continues to go up. Add the $560 from the stock you sold last month to this month's CASH ($7,124 + $560 = $7,684 + $38 INTEREST = $7,722). Write it in. Again compare SHARE VALUE and PORTFOLIO CONTROL and again SHARE VALUE is bigger. So make the calculations:
All that's left is to figure PORTFOLIO VALUE which is $8,508 + $7,723 = $16,231.
$ • $ • $
NOVEMBER 1995
Onto November 95. SHARE VALUE has dropped to $19.50 share. Go to columns 8 and 9. SHARES OWNED and PORTFOLIO CONTROL stayed the same since you didn't buy any stock last month. Write it in. Now multiply 415 X $19.50 equals $8,093. SAFE is 809. Last month’s CASH was $7,723+ $39 INTEREST = this month's CASH total of $7,761. Now the usual, compare SHARE VALUE and PORTFOLIO CONTROL.
The higher the stock goes, the more profits you can make. Later I'll tell you how to pick the best type of stocks, Closed-end funds, ETF's, and LEAPs (long-term options). The types of investments I would recommend depends on the level of risk you're willing to handle.
Now for those calculations. You see SHARE VALUE is higher than PORTFOLIO CONTROL as you thought. So...
The AIM system wants you to sell your high-priced stock, put the money into CASH and sit back and wait for the price to drop. Then you use your cash to buy cheap stock, wait for it to go up and then sell it again; the extreme opposite of a vicious circle. Last thing you have to do for the month this figure PORTFOLIO VALUE which is $8,093 + $7,762 = $15,855.
$ • $ • $
DECEMBER 1995
Onto December 95. SHARE PRICE has dropped to $18.62. SHARE VALUE is $7,729. Go to columns 8 and 9. PORTFOLIO CONTROL hasn't changed. SAFE is 772. CASH has grown. Last month’s CASH was $7,762 + $39 INTEREST = $7,801.
Again compare SHARE VALUE and PORTFOLIO CONTROL and SHARE VALUE is barely ahead. So do your calculations:
All that's left of figure is PORTFOLIO VALUE which is $7,729 + $7,801 = $15,530.