Finding the best portfolio management strategy

Stockworm has a built-in capability to simulate portfolio management strategies to determine whether or not the strategy performance is acceptable. These simulations are executed by providing a starting date, a dollar amount for the portfolio, and other information such as commission rates. Once this information is provided, the Stockworm system can trade the simulated portfolio on a daily basis over a historical period using our extensive database of stock information. The result of this process is a detailed list of buys and sells over time along with a plot which shows an overview of performance, compared with major market indices:

The strategy design process does not by any means conclude once a given simulation has yielded acceptably high returns.  In fact, the strategy design process is never ending.  There are a countless number of permutations of strategy parameters.  Each permutation may yield higher/lower/equivalent returns with higher/lower/equivalent volatility of returns.  The volatility of returns is typically experienced as ‘risk’ by the investor, so all things being equal, we seek the highest performance with the least volatility. 

In addition, certain strategies may be better suited for one client over another.  For example, one strategy may hold stocks for a longer period of time and therefore be better suited for a client who is seeking long term capital gains while another client may be willing to put up with short term gains in exchange for a much higher return.

The bottom line is that we often run thousands of simulations to find the strategy which best suits an individual client’s desires with respect to investment returns, risk tolerance, tax bracket and other factors.