Advanced Automatic Investor

[aptus]

Hello Conrad,

Welcome to the board. I'm looking forward to hearing your ideas.

"This index will behave quite different than any one of the stocks and has also lower volatility than any one of the stocks."

The index will never have a lower volatility than all of the stocks (i.e. some stocks will have a lower volatility than the index and some will have a higher volatility), assuming all stocks in the index don't have identical volatilities.

I agree with you that AIMing each stock separately is the way to go. I don't see any advantage to AIMing a basket of stocks in one AI portfolio. The only reason you would do this is to diversify, however you can diversify by AIMing multiple stocks each in its own portfolio.

You can even go one step further and share the cash reserve amongst all of these stocks (i.e. AI thinks each stock has its own cash reserve, but the underlying brokerage account lumps all of the cash into one big pot). The danger here is that you might not be able to act on BUY recommendations in one portfolio if another portfolio has used up the cash.

I also have high hopes for using periodic rebalancing with AI. In the future, AI will include tools that will make this much easier. My current favorite approach is to use MPT (although I'm not out of the testing phase with this yet), but I'm keeping a eye on what Jibes comes up with (AIM-Rebal).

I'd also like to hear what you and others think about optimizing.

Regards,
Mark.

http://www.automaticinvestor.com