Hi Ray About your random stock price generators, do you have that in a simple spreadsheet?
Nah!
Simple enough to do I guess but a bit of a pointless exercise as any pretty price graph line produced is unlikely to match any real forward time price line.
What I prefer to do is take a wide range of actual long term price series from the widest range of sources possible.
When you test against such a wide range of historic actuals you have a form of random price motions anyway.
Take an example of 200 day moving average timing. That's been shown to have 'worked' over a range of historic price series. There are however other historic price series where it hasn't had such good relative risk-adjusted rewards.
In the cases of where its worked you can pin down to a narrow range of prices the cause of that relatively good result. For example typically a few large downs are in part side stepped to have later bought back in at a lower price and as such yielded a good reward. That however doesn't automatically imply that it will repeat that better risk adjusted reward in the forward time direction.
Generally gains arise out of taking profits out of investments that have bubbled and locking in those gains by sharing the proceeds across the whole set.
Relative valuation measures in my experience are not that useful as often apparently low valuations can become even more 'better valued'.
The best tactic I think is to just diversify and pick off gains from the winners as and when they arise. That however is variable as the more you diversify the lower the benefits relative to the total become from any one of those holdings doing well.
Take the Permanent Portfolio as an example. Historically since the 1970's stocks, bonds and gold have done well. The mid 1970's saw interest rates in double digits (which implies low stock and bond prices so that the dividend/income equally reflected high yields). Gold was in effect IPO'd in the 1970's and subsequently rose significantly in price. Having relatively large amounts in investments that each performed well naturally provides a good overall total reward. The question however is whether those good performance levels in all three of the assets is likely to be repeated in the forward time direction. I suspect that wont be the case (or worse the counter side could predominate).
What I personally like about the PP is its low draw-downs driven by the choice of holdings. I've extended that further however (more diversified) to a somewhat similar set to that of Tom's holdings, but also including a more diverse blend of styles (stop-loss type approach, PP etc.).
Rather than hunting, just let the market do the driving. Even if you just achieve market average rewards you're doing well as most investors, not even Index Tracker investors, actually achieve market average rewards (most investors over-pay and later under-sell).
AIM is great in being a simple approach to have you trade is a emotionless and appropriate manner such that you are more likely to achieve market average rewards than under-perform the average if left to your own devices. It's also good at picking off the occasional strong bubbles that can add substantial value (as in Tom's most recent example (or rather real-world) case).
Best. Clive.
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