Advanced Automatic Investor

[Conrad]

Iwin....I mean Irwin...I did not mean that I won...yet.

You wrote:

Having everything in 1 stock does not reduce risk.

It certainly would if that one stock was a sure winner and the basket of 20 stocks contained some losers!. The issue here is of course more complex than this. A sure winner cold still produce a lower payout than a basket in which losers were present if the gains in the basket of 20 outstripped the losses.

Look at it in an other way. There are various ways of risk assessment techniques(most of them I have never heard of). I think of a risk calculation(for Example the Kelly Method) as a Profit Assesment Calculation Black Box(or give it a name you like). Then it is quite possible that output for 1 stock, with a particular investment worth X1, scores a lower risk(or higher payout potential) than the basket with 20 stocks of value X1. If you had picked 20 terrible stocks as opposed to 1 good stock then the calculation for the one stock could easily give a higher score. In this we must assume that the Black Box actually works properly and gives correct risk assessment results(something that in reality might not happen if the assessment method was faulty.

In the above it would not make any difference if value X1 was 50 dollars or if it was 100000 dollars. Nor would it matter if X1 was one's total fortune or simply a tiny fraction of it. The Back Box is immune to the external factors.

I suppose we could define a different type of risk. If a poor person invests 50 dollars at a 50 % risk of losing it then he might be better off to pay his outstanding bills with it. For a rich man the 50 dollars means probably nothing(unless it is Paul J Getty). This is an entirely different risk aspects of risk.

The dies roll the same for the pauper as for the billionaire.

That Gut Feelings can be automated simply means(for me) that any human action is a result of input and is a reasoning process( a new off topic?). If my gut feeling tells me that a certain stock is going to go uo or down then this is a result of experience, reading the market signals. Etc. Gut Feeling is a signal driven response.

If the Signal would be that Microsoft has fudged the books, then millions of gut feelings will trigger as many Sell Right Away orders. This could easily be automated. We could dub this it the Anderson Effect.


Conrad