Portfolio management strategies

Most people think that the key to successful portfolio managing is finding ‘good’ stocks using a technique such as Stockworm’s stock screeners.  In fact, this is only a small part of an overall management strategy.  A successful management strategy starts with the purchase of a good set of stocks but then proceeds over time into a continual evaluation process of which stocks need to be sold.  If a stock needs to be sold, then this ‘slot’ in the portfolio needs to be filled with a new stock to buy.  …. And the evaluation process continues.

Stockworm uses two strategy models to manage client portfolios.  One model uses explicit rules to determine when stocks should be sold (e.g. “sell if I have gained more than 25% on a given stock or if the stock is no longer undervalued”).  The other model uses implicit rules to sell stocks: if it is time to evaluate the portfolio (portfolios can be rebalanced daily, weekly, monthly, etc) and a given stock is no longer in the list of stocks which are recommended for purchase, then this stock will be sold.

Stockworm strategies also incorporate a number of features necessary to operate in a real world trading environment.  For example, the strategy can ensure that only stocks which are highly liquid are purchased for large portfolios (otherwise the purchase or sale of the stock may significantly affect the stock price).  As another example, the user can specify that wash sales (repurchasing a stock sold at a loss within a month) are disallowed to avoid an adverse tax situation.