Advanced Automatic Investor

[DonCarlson]

Hi Conrad,

Yes, I had made the post about "Tweaking" on the wrong board (there's getting to be so many of these boards).

I primarily view this site as a forum to influence AI improvements. So, on the issue of AI portfolios, here's a couple weaknesses I see:
1. Individual parameters can not be established for each stock within a single portfolio.
2. If you do put multiple stocks in a portfolio, the Optimum module does not provide a way to automatically find the optimum parameters for the portfolio as a whole.

I agree that when you group several stocks together under one AI portfolio, and if you were able to find the best parameters for that particular group, you would for all practical purposes, be creating an index. The advantage, that I see, is that you would then have the best overall parameters for that group of stocks. Most portfolios with multiple stocks in the same portfolio will not be stocks from the same sector, therefore there is no generic parameters where one size fits all.

We all seem to more-or-less accept Lichello parameters, as a baseline, but it would be interesting if AI were able to optimize on a large list of stocks, and see how close Lichello was.

On your question of optimization based on weighted value of risk. To me, the answer to that is classic asset allocation, with annual rebalancing. Each index or ETF (AIMed seperately) would represent a different sector and be rebalanced on an annual basis, i.e.

The Madonna Portfolio (by Bernstein) would be:
10% S&P 500
10% U.S. small stocks
10% REITs
10% international large-cap stocks
10% international small-cap stocks
10% emerging markets stocks
10% precious metals stocks
30% U.S. short-term bonds