Replies to post #921 on A.I.M. Users Bulletin Board (AIMUSERS)

[Conrad]

Hi (Lost)Cowboy,

I suspect you are not as "lost" as your name suggest. Something like what you suggest would appear an excellent Contest. The Rules of the game should be well defined. By that I mean: we should run the game with the same rules that would apply as if the numbers would come from a real invesment... What I try to say is this. A system simulation is fine but it is not the real world.

For example, if I invest today and tomorrow the stock dives to 50% then it is too late to adjust the "system" I used for making my decision. With a simulation I can go back and fiddle with the knobs to make the optimum moves to profit from the big dip(if recovery is programmed in the simulation).

A perfect example is my simulation with a Vortex AIM in which a 40% Minimum Trade Order proved to be the optimum strategy. If however the stock price amplitudes were less than 40% the simulation would have been a buy & hold strategy, and my profit would have been zero, instead of $35 000 on a $ 20 000 start-investment. Simulations therefore prove only that if you buy low and sell high then you win. Any 5-year old knows that.

So, the Contest should not allow back testing. It would only allow fiddling with the knobs as you go[/]. The problem with this approach is that it does not prove anything either! The same problem occurs with the yearly Stock Market Games I witness in Holland frequently. Some people do very well simply by pure luck and the next year the end up "broke". So, how can we really test a system except by simply looking at long term track records, and how then do we separate the investment savvy of the investor from the inherent capabilities of the system?

As an AIM-user and Vortex AIM developer I personally feel that I can outwit my own system simply by knowing what to do when a stock dives or reaches into heaven...The knowledge I have did not prevent me from buying Bre-X Minerals for pennies, but it also helped me pick a lot of winners. With a set of random numbers being fed to me I need to rely on the system, but THERE LIES THE DILEMMA: The Contest would become a roulette game.

Is what I call a dilemma real or imagined? Is it not so that any AIM system as such is only a vehicle that can be used to learn how to drive?

Conrad