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P123 provides only two choices for position sizing, roughly stated as (1) a fixed dollar amount or (2) a fixed weight, or equivalently a fixed number of stocks to be held. Neither is satisfactory for a sim or port that grows significantly over time. I request that the user be able to specify a fixed weight that would be overruled by a fixed MAXIMIUM position size. (Example: 20%, subject to max of $50,000. If the port value is under $250,000, 5 stocks would nominally be held. As the value increased to $1,000,000, the number of stocks held would automatically be increased to 20.)

Most of the prize-winning sims use the fixed Weight rule. These show totally unrealistic trade amounts in later years. It does no good to specify limits on PctAvgDailyTot, because this just ensures that over time the sim will tend to buy only the most active stocks ... or none at all.

Specifying a fixed amount doesn't do it either, because it results in too-few purchases in early stages.

This request was inspired by a comment by Ravi.
Results: Total score: 28, # of Votes: 8, Average: 3.5
a
 
20 (5)
b
 
6 (2)
c
 
2 (1)
d
0
Scores are calculated as (importance) × (# of votes), where importance ranges from 1 to 4.
Requested by: jerrodmason
On date: 08/30/06
Category: Portfolio

16 comments