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How Automatic Investor Works

Posted by | March 2, 2014 | Software | No Comments

The Analysis Engine

The heart of Automatic investor is the analysis engine. It’s based on a time-tested algorithm developed by Robert Lichello in the 1970s.

Of course Lichello had to perform all his calculations by hand – a tedious chore to be sure. Over the years, Lichello’s algorithm has been improved significantly.

Automatic Investor not only implements the very latest improvements, but also harnesses the power of your computer and the Internet to make managing your investments a breeze.

A Theory Ahead of its Time

Lichello came up with a simple, but brilliant, system based on stock market volatility.

Unfortunately, the theory was too far ahead of its time. When first developed, it was not feasible to perform the necessary calculations frequently enough.

The system still worked, but many buy and sell signals were missed. The proliferation of the computer, and the Internet, has changed that.

Hundreds of calculations can now be performed in a second. Furthermore stocks are much more volatile today, and the Internet brings an unprecedented amount of financial information right to your desktop.

These key developments have combined with Lichello’s algorithm to usher in a system that can significantly increase your investment returns.

Value Added Features

But that’s not all. Automatic Investor adds a host of features to the Analysis Engine. Features that not only makes it a snap to use, but also increases its power and effectiveness.

Features such as the most comprehensive set of tuning parameters currently available. These parameters will let you configure the system to your investment style, market conditions, and the characteristics of your portfolio.

Once you’ve gained some experience with Automatic Investor, you’ll definitely want to learn about them. For now ignore them. They default to values that work well with most portfolios.

A Look into the Past

Automatic Investor also allows you to back-test stocks based on historical prices.

You can update your entire portfolio from the Internet with one mouse click. You can “go back in time” to see what your portfolio looked like at any given point (using Automatic Investor’s unique check point feature).

And the list goes on and on.

The Information is in the Price

The analysis engine operates on the principle of letting the price (and optionally the Volume) dictate the response.

It doesn’t try to predict the future. In other words, all of the required information is in the price (and Volume). Combined with your portfolio’s history, crystal clear recommendations are instantaneously generated so you can quickly place your trading order.

Keeping some Cash on Hand

When starting your portfolio, Automatic Investor recommends you buy some stocks and keep some cash. The exact proportions depend on the Model you’ve chosen. You can change Models at anytime.

When you update prices, Automatic Investor calculates your new portfolio value and checks it against your portfolio’s history. If it has gone down, Automatic Investor will determine whether it’s time to buy additional shares at the lower price.

Conversely, if your portfolio’s value rises, Automatic Investor may advise you to sell a portion of your holdings to lock in a small profit.

In effect, you buy when prices are low and sell when they’re high. As stock prices fluctuate, Automatic Investor will efficiently buy and sell to purchase cheaper shares and lock in small profits. Your portfolio benefits to a small degree with each iteration (whether because of obtaining shares less expensively or locking in a profit).

Over time, these small benefits quickly add up, and your portfolio will experience a compounding effect. You automatically average into a stock at timely intervals and systematically take profits when it’s advantageous.

You can see that the more volatile a stock, the better Automatic Investor will perform.

But Automatic Investor can also do exceptionally well with some of the most widely held stocks too (see the detailed performance study).

A Delicate Balance

Another benefit is that Automatic Investor will balance your cash and equity positions based on the prevailing market conditions.

You’ll find that when the market is relatively high, you’ll be flush with cash – ready to buy when prices start to fall. When the market is relatively low, you’ll be fully invested – ready for the upswing.

And that’s exactly what you want. As prices fall, you want cash available to purchase shares at lower prices. As prices rise, you want to be fully invested to take advantage of the rising trend. Because of this, your risk is constantly minimized. Automatic Investor ensures that’s the case. Automatically.

Mr. Spock would be proud

You’ll notice that you don’t have to watch the market. In fact all you have to do is choose when to update your share prices.

Automatic Investor removes all the emotion from your decisions and replaces it with a mechanical logic that’s impervious to feelings of greed and fear.

As any professional investor will tell you, “emotions are deadly.”

Multiple Stocks

Automatic Investor works well with a single stock or a basket of stocks.

From its perspective, it sees cash and equities. Whether the equity portion is composed of one stock or many, doesn’t matter.

And that’s to your advantage because you’re free to swap an equal value of one stock for another, at anytime.

Let’s say you have two stocks, 100 shares of IBM and 200 shares of Microsoft. IBM is trading at $100 a share. Microsoft? $50 a share. The total equity value of your portfolio is $20,000.

If you then decided that you liked the fundamentals of IBM slightly better than Microsoft, you could sell, say, 100 Microsoft shares ($5000) and buy 50 IBM shares ($5000).

Note that you didn’t change the total equity value. It’s still $20,000. What you cannot do is sell 100 Microsoft shares and keep the proceeds in cash. In that case your equity value would be $15,000 and Automatic Investor would not work correctly from that point on.

A Detailed Explanation

For a complete explanation, we suggest you read Robert Lichello’s book, “How to Make $1,000,000 in the Stock Market Automatically.” You can purchase it in our bookstore.

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