Quote from BornToTrade:
Here is the quick and dirty spreadsheet. It isn't pretty but I just wanted to see the numbers.
Mr Market, I was assuming you would probably increase the position size, so that it might start out at $10,000, and as the account grows, 1/12th might now be $12-13,000, etc, and take a larger position. So the return would be greater. I wasn't keeping a running balance of current positions so I just went with a straight 10,000. If anything, the returns could be better but this was conservative. I didn't factor in commissions but those would be small since it isn't traded. Total maybe $1000 + / -.
I know the analysis isn't perfect, and you can't see any real draw downs, but, if you were to compare this to someone buying the QQQs or DIA, or a mutual fund, they would suffer the same ups and downs.
I think, if were to trade this strategy, and I wasn't using stops, I might close out a position if a better one came along. So let's say I had a clunker that was down 20% and my 12 slots were filled. A new oppurtunity came along but there wasn't the 10,000 available to take it, I'd probably sell the loser and change horses. your account hasn't "lost" anything as you already had the loser, but the new horse might go where you wanted faster. Much the same is Mr Market might sell at 15% and pick a new horse, I might sell the loser, and hope for a new 15% one.
I'm trying to remember where I read something about diversification, and how when you get above 10 (10 stocks) you aren't gaining much as you diversify. At some point, you are over diversified, and all you are doing is cancelling out your + and -. I'll have to find the article. As I recall, 8-12 or something was a reasonable diversification.
