Chapter 12
Why the AIM System Works
A check of the share price of Campbell Resources (spreadsheet next page in your Adobe Acrobat book) shows it has declined from the original price of $6.00 a share to $2.37 a share or a 61% drop. Thus a lump sum investor (all money is in the stock), if he or she had invested the same total amount of money you had (in total $35,000), would've lost 61% and the $35,000 investment would have lost $21,350 and be worth $13,650 in November 1987. Compare that to what your investment is now worth. Your portfolio is worth $48,610; quite good for stock that may be a total disaster. You’re ahead $13,610 or 38.8%. How do we do it? What's the trick? Why does the system work?
I was curious myself and so I started investigating. A review of the buy/sell chart at the end of the chapter shows that your average buy price (excluding initial buy) was $1.35. Your average sale price was $1.95. Thus you made $.60 per share profit on every share you sold.
You sold 13,000 X $.60 = $7,856
Some profit comes from interest earned on the cash balance (add column 10) = $1,120. The rest of the profit comes from the increase in value of your remaining shares. I won't give all the details but will show you a couple of examples: you buy 5,771 shares at $.94 each and 5,291 shares at $.87 each. As of September 1987, the share price for Campbell Resources is $2.37. Each of the 5,771 shares is worth $1.43 more than what you paid for it or 5,771 X $1.43 = $8,252 more. Each of the 5,291 shares is worth $1.50 more than you paid for it or 5,291 X $1.50 = $7,937 more. If you check the buy sheet, you'll see other months where you bought stock for less than the current $2.37 share price.
When you see that you can make money on a stock that drops 61% below your original purchase price, you know you have a really amazing system. Of course you had to have a fairly tough attitude to hang in there and put that extra $25,000 into the stock. Think of the profits if Campbell Resources merely goes back to its original selling price. Or if you decide to get out, sellout; you can sell all your shares, take your profit and get into another stock. The choice is yours. See Campbell Resources spreadsheet in your Adobe Acrobat book.