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A Comparison between Automatic Investor and the Buy & Hold StrategyThe keys to Automatic Investor's success are stock selection and volatility. As an example, to show you how Automatic Investor works, we've selected a blue chip tech stock -- Microsoft (ticker symbol MSFT). It's a solid company with exceptional management and a long-term record of better than average growth and returns. It's also fairly volatile. There are, of course, other excellent companies that exhibit more volatility (and thus would boost Automatic Investor's returns), but we wanted to show you how well Automatic Investor works with a widely held blue chip stock.
See the Index Study for details on how Automatic Investor performed, compared with the Buy and Hold strategy, on the DOW, Nasdaq 100, S&P 100 and S&P 500 indexes. The following comparison assumes that $10,000 was initially invested, commission costs were $10 per trade, and no interest was earned on cash.
MSFT
The table below summarizes Automatic Investor's recommendations over the period. Note that a $10.00 commission is assumed on each trade except the first*.
* Commission on the first trade was not included because it was offset by the commission on the first Buy and Hold strategy's trade. Automatic Investor Results
October 9, 2002:
Simple Return: 72%
Buy & Hold Results:
October 9, 2002:
Simple Return: 27%
SummaryFor the period, Automatic Investor returned 72% compared with Buy & Hold's 27% (or 11% annualized compared with 5% for Buy and Hold). That's more than twice the return. If interest payments on cash were included, Automatic Investor would have gained slightly more, because its cash on hand was significantly higher on average. In fact Automatic Investor had just 64.76% of its portfolio at risk (i.e. invested in MSFT), on average, whereas the Buy and Hold strategy had 100% of its portfolio at risk. In other words Automatic Investor provided INCREASED RETURNS with LOWER RISK. In essence, it BOUGHT LOW and SOLD HIGH!
Compare the chart below with the table above. You'll see that Automatic Investor consistently sold
when the share price rose and bought when the price fell.
Simulation DetailsThe Historical Simulation was run under Automatic Investor version 2 Service Pack 1 using the MACRO Model (if we had used the Default Model, the return would have been 79% or 12% annualized). NO optimization was performed to enhance the results. The study assumed that all recommended trades were filled at the closing daily prices. The study did NOT include interest earned on the cash reserve (i.e. the no-risk cash portion of the Automatic Investor strategy) nor did it include dividends, but it did take into account commissions for each trade. A fixed $10 per trade commission charge was assumed. Tax considerations were ignored. The study results listed above represent simulated computer results over past historical data, and not the results of an actual account. Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance does not guarantee future results. Current performance may be lower or higher than the performance stated. Please read the Terms and Conditions before using any information contained in this study.
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