Irwin, you wrote on what I wrote:
So how can a SR figure if it's up up and away so buy more or down we go abandon ship? I always thought that if you only invested what you are willing to lose in any one stock and worked at finding good stocks. that AIM would take advantage of the price moves to increase returns and holding between 5-10 stocks would reduce the overall risk. If one stock goes Deep Diver you could just sell and replace the stock.
I may be repeating myself... but I may say it in a different way:
I see the AIM as the basic tool as you see it. Hopefully I will end up with a automatic optimization SR to optimise for a particular Trading Range.
Then I see a SR(could be anything) that would be able to identify impending differences to the Trading Rage I am working in and for which I am willing to let AIM do the work. If the second SR shows a breakout to a higer stock price than the Trading Range then I would not sell on AIM Command but hold off selling or even buy more stock. I would do this with a gut feeling as well, and I would call that the SR I mean. (Gut Feelings can be automated).
On the Deep Diver one needs to do this as well(override AIM if necessary).
I do not see that only the AIM is executing Money Management. If I am confident that I(or my SR) predict an upper bound breakout, then I will practise smart Money Management to invest more on the rising stock. This reasoning is also true for Deep Divers. It can go both ways: Bailing out if I lost faith(overriding AIM) that the stock was worth having, or Buying more stock(with borrowed money) if the stock was worth buying. The risk assessment would, of course, be focussed on Risk Reduction.
That is my opinion an answer to your question. Whether or not I would use 1 stock or 20 in my portfolio is not at all important. The crucial thing is that if my assessment is that with all the eggs in 1 basket my risk is lower than with the eggs in 20 baskets then I will stick with that one stock.
I state that diversification is not a Holy Sacrament for investing. Diversification is used, sometimes out of ignorance. If one can not pick stock that all have high returns(or avoid divers) one can diversify and count on the average yield of the stock mix. It all depends on how much skill one has in picking high yield stock.
Do not interpret this that I would always advice against diversification. Anyone that wants to avoid picking good stocks could diversify and choose a mix of mutual funds.(TIC).
Conrad
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