Hi Redbacka,
Yes, I agree the actual decision process a real investor would use would no doubt be far more comprehensive than the one outlined, but rather than a total investment strategy I was thinking of this as merely a fun exercise to test Bogle's contention about indexes versus stock picking and my thought was to keep it as simple as possible. I would like to work with you on this and we could start afresh from one of your earlier posts if you like, if we can avoid hindsight bias. I'm open to suggestions.
I can set up 200 day MAs on BigCharts, but not some of the more sophisticated indicators you use. I don't subscribe to ProRealTime so, since you are already doing all of your excellent work on your "ASX 100 Stock Ratings" section, perhaps you would be in the best position to judge which stocks should be added to the portfolio and when they should be removed based on the ratings, etc.
Once a stock satisfies your entry criteria, I suppose a purchase could be made mid-week, after you publish your report, based on the Stochastic as you recommended, but it would probably be easier if decisions were simply based on Friday's closes with all buys and sells using Monday's open prices.
Perhaps dividends could be ignored as they would probably be roughly the same for the portfolio and STW. Alternatively they could be included if you prefer. I guess it wouldn't be too difficult to calculate them and add them to the Cash account.
The $100,000 portfolio should be limited to either 10 or 20 stocks (your choice) and new stocks would be added only to replace ones which have been sold. Initially, STW purchases would match stock purchases until fully invested.
When a stock is sold, the proceeds would be held in cash and invested in the next selection.
Rather than trying to "time the market", my idea is to see how the portfolio compares with a "buy and hold" STW investment, so it should remain fully invested unless stocks meet the exit criteria, in which case the proceeds would go into the Cash account until a suitable buy is found. In a bear market it may even go to 100% cash, but it theoretically should still outperform STW even though there would be losses.
Do you think it's worth giving it a try?
Cheers S.
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