Autoinvestor strategies provide a full description of your investment objectives for a stock portfolio. The ‘autoinvestor‘ name is derived from the fact that these strategies let you put your investments on auto-pilot because, given a strategy and a portfolio, Stockworm can issue automated buy and sell recommendations.

Strategies are used to manage two flavors of portfolios: simulated portfolios and stockworm portfolios. Simulated portfolios, described in a previous post, are used to backtest a strategy in past markets and refine a strategy before using it with a stockworm portfolio. A stockworm portfolio is a portfolio which you use to (potentially) mirror a real dollar portfolio at a brokerage house. Stockworm will make daily buy/sell/hold recommendations for a Stockworm portfolio with an associated strategy.

At first glance, a strategy looks a lot like a screener. There are some portfolio composition parameters, followed by a familiar list of rules for stock selection:

So, how do strategies work? First, we need to consider the portfolio composition section. This section provides the very basic guidelines for portfolio management. The most important parameters are stock count (the number of stocks held in the portfolio) and cash reserve (the dollar or percent amount of cash which you would like to keep as a baseline in the account). There are a number of other options available, depending on the strategy type.

We can combine the stock count and cash reserve with a portfolio (simulated or ‘real‘ stockworm) to tell us:

1. how many stocks we want in the portfolio and
2. how much money we have to purchase each stock.

We next need to figure out which stocks we want to buy or sell. This is where the rule sets come into play. When the portfolio is all in cash, as it would be when you are just starting out, the rule sets basically just function like a screener: find the top stocks which satisfy all of the rules and then purchase as many stocks as needed to fill the portfolio (based upon the stock count).

Once we have filled a portfolio with stocks, how does the autoinvestor provide buy/sell recommendations over time? Well it depends on which autoinvestor strategy type you are using. The standard strategy recommends the sale of stocks which are no longer at the top of the list of stocks generated by the rules. The classic strategy, on the other hand, uses explicit close rules like “sell when a percentage stop gain or loss is reached“ or “sell after holding for 1 month” to describe when a stock should be sold. With both strategies, vacancies in the portfolio (caused by sells) are filled with the top stocks from the open rule set.

getting started

After reviewing the Stockworm strategy list, pick a strategy which seems closest to your investment objectives. Click on the strategy name to view the strategy. Once you are viewing the strategy, click on the ‘save as‘ to save the strategy as your own. Feel free to play with the strategy to customize it to your needs; perhaps you would like to hold more or less stocks in your portfolio or would like to add a rule or modify or delete an existing rule. Remember to save your changes by clicking on the ‘save‘ link.

After you have customized the strategy to suit your needs, you have two basic actions that you can take: create a simulated portfolio or use the strategy to manage a stockworm portfolio. You can simulate the strategy by clicking on the ‘simulate‘ link. The process of managing a stockworm portfolio will be discussed in the next post.