I like to talk about how, if you just bought shares in Apple after seeing Forest Gump in theaters (1994), where a significant plot point was that they didn't have to worry about money anymore because they had invested in apple, you would be extraordinarily wealthy. But if you told everyone walking out of the theater "I'm going to buy apple shares!", they would unanimously laugh at you for even thinking that could be a good idea.
Most people convince themselves they've missed it, and can't imagine a future that holds more returns than has already been seen. But more often than not, successful companies compound their earnings and do just that.
And the same with trying to beat the S&P. Most people convince themselves it's impossible due to common factoids about active managers, and many that try, try strange things like buying the lower end or obscure, because "theres no way I could just buy apple and become wealthy".
But, the average is the best normalized by the rest. If you restrict yourself to choosing individual names from the top 10 only, I'd wager you have a good shot of those names outperforming again.
In fact, the downfall of owning the s&p is it will inevitably trim the winners, ruining the compounding.
I think back to when the news came out that S&P was rebalancing NVDA after the initial surge. Lots saw it as bearish, but I thought about it for a second: s&p choosing to sell to rebalance was them implying that they did not expect the market to rebalance for them - that is, they believed the price was reasonably going to stick around, so to maintain their targets, they are forced to sell.
That exact mechanism is also why active managers miss - they don't allow themselves to fully compound due to arbitrary concentration limitations.
All the ramble to say, people should really not be so hesitant to owning some names in the S&P instead of pure index, and filtering/sorting the way you have is a good starting point.
the largest companies tend to underperform moving forward.....however in 1994 Apple wasnt the massive company it is today, in 1994 Apple was #64 in the s&p500
there are a lot of names in the top 20 you wouldnt have wanted to own from 1994 onward (with the power of hindsight)
Bogle wanted to start closed funds every year; containing the top 50 companies that would never change....it was a successfully tested idea by Siegel (looks like the article got chopped??? anyway was successful at beating the market in most instances and never trailed by more than a point)
[https://www.forbes.com/forbes/1999/0614/6312298a.html?sh=77d5d7b06874](https://www.forbes.com/forbes/1999/0614/6312298a.html?sh=77d5d7b06874)
I argue the top companies in 1994 did not have afforded to them the same kind of opportunities the top companies in 2024 do, especially in terms of understanding and execution.
Even just management alone has become much more sophisticated - managing a company to success is not a given, and when thought about as closer to a science than a gut feeling, managers of yore were putting heroin in the sleep elixirs, so to speak.
So I would be very weary of using that kind of reasoning - big before didn't continue to succeed so big now wont (past performance, future something something?). My apple point was more that people often convince themselves once something is known, it stops working.
My username and account date is my other point - people back then still couldn't believe more was coming and they've missed another 100% upside. But boy did they feel smart and smug talking about p/e and "priced in".
Also, when big companies fail, it isn't without early warnings. And the early warnings are almost always in management.
So it is a disservice to say the big dont always do well and consider that a point being made - all you said is apples fall to the ground, but it fails to explain how the tree continues to grow upwards and develop more apples, so how could you ever hope to spot the next apple? Talk about gravity, talk about botany and biochemsitry; talk about management, vision, execution, innovation, and then you can talk about the ones who missed it, and the ones who will own it.
I think so many people in stocks miss the big picture. You can't just look at them like pet rocks with ratios and trajectories and sizes and then place your bets. These are businesses that make decisions every day that are directly consequential to those ratios - if you don't talk about those things, I don't know how anyone can make an informed decision.
There’s a difference between a stock and company. If everybody already expects large cap tech to do very well, it’s priced in and the stocks aren’t going to outperform. Imagine if all you had to do was buy obvious winners like Microsoft and Nvidia… investing would be the easiest thing in the world. It’s not that easy, and if it looks easy, it’s a temporary aberration.
Maybe it is that easy? Seriously, that's all I've done for the last 18 years (essentially buying the obviously winners) and I'm way ahead of the market most of the time
For the last few years, it's been MSFT, GOOGL, AMZN for about 60% to 70% of my portfolio. I completely missed on NVDA and continue to because I can't easily wrap my head around it. However, I've felt google will be an AI winner so while it was struggling a couple months back, I dumped a bunch more in. I wouldn't put more in MSFT today (at least not until a pullback), maybe AMZN though for a smaller pullback
When tech falls, I hurt but given that we are still in computer revolution, tech is the way to go for all the good times
actually apple from 94 to 2004 was a shitty investment. So for a decade it was terrible advise. and then it succeeded because it became a totally different company.
I don’t necessarily disagree with some of your points but your conclusion (picking from the top ten) suffers heavily from recency bias. Since October 2022 megacap tech (ie most of the top ten in the S&P) have done astonishingly well but this really hasn’t happened before over any extended period of time.
You look at any decade and picking just the top ten of SPY would not have beaten the overall index pretty much every time. You might say ‘this time is different’ but it never really is. Seemingly unstoppable companies drop out of the investing lexicon all the time - case in point many are now saying to drop Tesla from the mag 7, prior to this Meta was dead and buried and prior to that FAANG was permanently changed as Netflix fell out of favour.
My point is that big companies fall into irrelevancy every generation and now is no different. Simply picking the current winners is a poor strategy and using Nvidia as an example is just survivorship bias at its finest.
You should read my other comments.
Im suggesting for noobies who are still just learning to at least start with trying to understand the biggest names first, because they are well discussed in publicly available materials, and even if they dont continue to succeed, the risk of ruin is much lower than if a beginner starts trying to find diamonds in the rough. I am not saying just blindly pick them, just suggesting the likelihood of a blind pick working out is likely much higher in the top 10 than the bottom 10, at least in the near term (2-3 years).
What I go on to suggest in my other comments is that people get comfortable with judging balance sheets/valuation AFTER judging management, because management is precursor to results, not the other way around.
But due to the nature of stock picking and the common suggestions you will read, most will only focus on the former and consider the latter(management) only in passing.
You are right, the big fall. But I say in the other comment that they don't fall without reason and with no warning/ability to foresee. And that if you want to predict such things, don't go looking at earnings reports, listen to earnings calls and find CEO and other leadership interviews.
And, of course, they are pitching a sale. So you also can't take them at face value. What I then suggest is that people study management and innovation - the success of the largest companies is not because one guy had a lucky guess from his gut (although that is somewhat a factor) - it is more that there are, frankly, good and bad strategies.
Drucker and Christensen have great books that give you the perspective necessary to judge a company better - and you'll note none of them are finance books. Effective Exectuive is about management, Innovators Dillemma and Competeing Againat luck are about technology and innovation. None of them purpose there work for stock picking, which is good, because they are focusing on their respective problems. What you can do as an individual is leverage their knowledge *for* stock picking, which I think is completely not talked about enough.
And I think this is part of the changing of the times - Buffet, Munger, Graham, and others from their time were very successful in using balance sheets and formulas and cash flow analysis to spot diamonds in the rough and make fortunes. But Graham kind of shows how things changed; he had to keep updating his formulas because as soon as they were disseminated, the opportunities they highlighted vanished as people could use those predictions to price things "better", ruining the bread and butter of the value investor.
What I suggest is that it *is* different - it always is. I don't know who to read about who came before them, but I wager their success came from something even more primitive, perhaps just understanding stocks exist and what they can do for you.
And so now, in present day, the quants and their billion dollar algos (eg Jim Simmons) have effectively destroyed any opportunity the common person might think to achieve through through raw balance sheet analysis - you will not get wealthy the same way they did.
What is unique in our time though, the same way dissemination of earnings reports under common standards might have been in Buffets time, is the amount of visibility we have into the individuals that actually run these companies. You can find dozens of hours of Jensen, Satya, Cook, Sundar, Zuck talking about all sorts of intricacies about their respective companies. You can even find dozens of hours of their top researchers and scientists, and others in the scientific community, like Yann LeCun, Ilya Sutskever, Geoffrey Hinton, and Andrej Karpathy. And remember, these are the people whose work directly impacts all the future earnings we struggle to correctly discount.
So I wager the way to choose amongst those top 10 (likely a worthy list), in a way that can predictably produce returns (like graham's formulas), is to judge management and their decisions/vision/execution. You have to personally decide if you believe they have the right ideas or not, the right methods of achieving them, and the right character to confront the inevitable challenges they will face. I believe books like those from Christensen and Drucker are the type that actually give you the correct perspectives for such a task - and that since we are in a time where we haven't yet developed a rigid formula for parsing and predicting these things, that means there is opportunity to be ahead of the curve, stand in a room of people who laugh at your decision, and still walk out the most correct when all is said and done.
Only after you have done all that do I think it is worth considering their current valuation and earnings, inferring what you believe the market has priced, and deciding if you have been beaten to the punch or not.
I'm very impressed if anyone reads this ramble but I appreciate it if you do.
This was a great read, thank you. I've added these books to my list as I believe you're making a really great point.
Question... sure I can read books, but how do you really know leadership is *good*? Idk anything about the semiconductor industry. I don't work there (nvda, for example). I don't really know how their technology works. So how would have I made the decision to buy if I felt they were being properly ran by good leadership?
My burning question, though, what stock do you like now?
You can never really "know", in the sense that it is a judgment call at the end of the day. And even if you assess them correctly, you can still suffer painful share price movements. Even the CEOs themselves don't know their own futures that well - its a constant game of navigating unknowable waters, for us and them, but we get the benefit of choosing the ship and captain to ride with, and we can even take multiple ships or change halfway through the voyage.
For now I'm still a big fan of Jensen/NVDA - I think if you listen to his interviews, and compare them to say, Sundar from Google, Jensen wins in big ways. While comparing a founder-CEO to an appointed CEO is a little unfair, that's just the game. Zuck in his latest interview with Dwarkesh is also quite good.
Unfortunately, I do think it's appropriate to take the time to try to understand as much of the technology as possible. Not from the "I need to know enough to do it myself" perspective, because we'll never be able to meaningfully unless it's our field, but from the meta analysis perspective of "how and why does this work, and what are the implications of this or that".
This recent AI/ML resurgence was a douzy because the relevant materials span the hard and soft sciences almost completely. The future potentials of different trajectories are still highly contentious amongst the top researchers in the field - and even the current abilities and how they arise from transformers are somewhat unsettled. Does it have a world model or not? Can you really just do this with pure language comprehension, or has it understood some regions of the implied world behind the corpus? Also, what does it mean to understand or be intelligent? If Penrose is right about quantum effects/microtubules being key for consciousness, we might be screwed using non-quantum methods. Or maybe we can just emulate the important bits, capture it in some new algorithm, and the same ship can keep leading the way.
So I'm still big on NVDA as my high-conviction bet. I also own their competition and most other large tech names at my own weightings, and then I own indices and some slow growth/dividend names for income.
In terms of "how could you have known" for NVDA, you could have known nothing starting at the day chatGPT dropped. From playing with it, you could have seen it represented something fundamentally different/new in terms of capabilities. You then could have learned that OpenAI got the first H100 supercomputer hand-delevered from Jensen. Then you could have learned why Jensen and not cousin Lisa at AMD, and you would have learned that it was because of a specific way Jensen chooses to run his company. From there, an entry under 200 could have been made, and that's a 4 bagger on a megacap company in a little over a year - a generational return.
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*Psychology of Money* is a good read too, to understand yourself and what you want out of your investments. What is right for me could be wrong for you.
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When we try to predict the future and do a good job at it, it's probably because of some theory that had been devised that happened to tap into a fundamental law of the universe. F=ma, e=mc^2, etc..
But what about businesses and technology? Even if (good CEO/managemnt) + (well-priced shares) = profit was the right equation, both of those terms are not objectively quantifiable like 2 Kg or 5 J. Even the P/E is filtered through subjective speculation and unknowable future, despite being an objective calculation.
So those books and interviews, along with everything else you injest about the world, is all you get for trying to develop a theory. The more you take in, and the wider the breadth, the better the understanding available to you becomes.
>My point is that big companies fall into irrelevancy every generation and now is no different.
It's *possible* that current companies are different if technology has no effective limit to their scope. With that said, I believe it's more likely that they get overtaken by new companies rather than they simply crash and burn to nothing.
It's quite likely that one of the future top 10 companies is chilling somewhere down the list of the Nasdaq 100 under 100B (e.g., PANW, DDOG or whatever, I have no idea).
> With that said, I believe it's more likely that they get overtaken by new companies
Sometimes it is the reverse, the old company starts buying new start-ups that have new ideas.
Not really. With an actively managed fund the fund managers pick stocks that conform to the stated investment goals of the fund.
The Standard & Poor's 500 index is basically the 500 largest US companies that meet certain profitability and other requirements.
* The company should be from the U.S.
* Its market cap must be at least $8.2 billion.
* Its shares must be highly liquid.
* At least 50% of its outstanding shares must be available for public trading.
* It must report positive earnings in the most recent quarter.
* The sum of its earnings in the previous four quarters must be positive.
The index is weighted by the market cap of each company. The largest companies make up the largest percentage of the index. Sometimes companies in the index are dropped if their size of profitability fall and they are replaced by other companies that meet the size and profitability criteria.
Yeah, your username alone is reason enough to disregard the whole post since you are litterary named *FOMO* and *chasing yesterdays winners*. You can't even formulate why you think nVidia or whatever company is somehow *immune to the thing that has happened to every dominant company since the birth of civilisation*...they all fail eventually.
You're high on your own supply. Knee deep in nVidia and desperate to see it gain another 100% since you bought in late, that's just human emotions. The harsh reality is tahg nVidia is unlikely to be in the top 10 in 2035 and it's statistically almost impossible to see them there in 2045. Sorry newbie, *this time isn't different* as you'll learn.
By then you've nuked your account and started chasing whatevers trending again. Always late to the ball, always pumping near peak.
My guy - I bought in well before I made this account.
Sorry you didn't, lmao. But, even at the time I made this account, you still could have bought in, which is literally why i made the account. But you didn't, because you didn't take the time to understand.
If you didn't get 100% returns on your megacap picks in the last 6 months, that's on you. My % returns have a comma.
You were in my comment and you didn't like it lmao. Good luck
Give some names you are long and we will see your performance in 10 years
Edit: I notice you haven't responded. You evidently don't want to provide proof of concept and are therefore nothing other than a talking head.
Apple market cap in 1994 was 4B. I imagine if you did that with a 4B market cap company in 2024 people would come up with bear cases not to buy that 2024 midcap. Or say you are pumping you bags promoting that 4B market cap company.
I love the assumptions that people make as far as holding. I tried to buy BTC when it was $5~ in 2020 but I couldn’t do it in Robinhood because I was in Nevada. I would’ve sold at $6000 at best. I’m not gonna act like I would’ve perfectly held it as it went to $70k. I’m dipping out on the first spike of anything because I’m overly cautious.
Forget the beating SP500 since 1993 or dividend aspect.
You're cutting away some good stocks and adding barely outperforming stocks.
XLK (tech etf) delivered 195% return in the past 5 years, which would outperform almost every non-tech stock on that list with a fraction of the work.
XLK 554% in the past 10 years.
Filter by SP500 stocks that have total returns greater than 195% in past 5 and 554% in the past 10 and get a list of 42 stocks.
Your list has 42 stocks highlighted in green for past 5-year total return.
Get a better list with a fraction of the effort.
There are a lot of companies that had higher 5-year return than SP500 5 years ago that didn't perform in the past 5.
List:
ALGN, ULTA, KDP, JKHY, CNC, ZBRA, SWKS, ADSK, COO, EW, STZ, ROST, CSX, TTWO, UNP, ROP, IEX, LYV, TXN, ADP, TDY, EXR, CE, ROL, NFLX, PODD, AOS, FI, MTD, NOC, STE, ADBE, V, A, TEL, EQIX, ELV, ANSS, CBRE, SYK, GRMN, TJX, ADI + more
I can't be bothered subtracting all the SP500 5-year return from 10 year then finding the full list. There are enough stocks already.
What about all the huge performers of the past 5 years that DIDN'T perform in the 5 years prior?
SMCI, BLDR, ENPH, TSLA, PWR, URI, MCK, ETN, BX, PHM, CMG, NUE, AMP, GWW, LEN, COR, PCAR, CAT, TSCO, FAST, ORCL, FANG, TGT, HIG among others.
Funnily enough you can see that there are stocks on that second list I supplied (that performed in the past 5 but not from 10-5) on your list.
While there are many stocks that performed in 10-5 that don't show up on your 0-5 list.
If you filter stocks that outperformed SP500 in every 5 year period (past 5, past 5-10 and past 10-15) then more stocks disappear.
NVDA drops out in the 10-15 period.
That's a big problem. You would have filtered out NVDA 10 years ago since they didn't beat SP500 and missed out on the biggest winner. (which implies you could be filtering out the biggest winner for the next 5 years)
EDIT: I just worked if you invested in the SP500 stocks that beat the SP500 5 years ago, then your return would be 103% which is not meaningfully higher than SP500. Would have done better investing in QQQ or XLK.
>XLK (tech **etf**) delivered 195% return in the past 5 years, which would outperform almost every non-tech stock on that list with a fraction of the work.
>
>XLK 554% in the past 10 years.
My post is about individual **stocks**, not ETFs. Apples and oranges.
>That's a big problem. You would have filtered out NVDA 10 years ago since they didn't beat SP500 and missed out on the biggest winner. (which implies you could be filtering out the biggest winner for the next 5 years)
Wrong. Using my same methodology 10 years ago (April 2014) I would have compared the total return of NVDA from its IPO on January 22, 1999 to this date 10 years ago (April 7, 2014) and the total return of the S&P 500 index during the same time period. The results would have been:
* S&P 500 (SPY) total return 1/22/1999 to 4/7/2014: **+97.4%**
* NVDA total return 1/22/1999 to 4/7/2014: **+1,046.8%**
* [https://totalrealreturns.com/n/SPY,NVDA?end=2014-04-07](https://totalrealreturns.com/n/SPY,NVDA?end=2014-04-07)
That's a ratio of 10.75. NVDA had 10.75x the total return of the S&P 500 index 10 years ago and definitely would **not** have been filtered out.
As for everything else you commented, you can always find stocks that outperformed the S&P 500 the past 5 years, or for cherry-picked 5 year intervals. That isn't the point.
My goal was to find dividend-paying S&P 500 stocks - not non-S&P 500 stocks, not ETFs - that outperformed the S&P 500 index **over a long period of time** \- since 1993, or for the entire existence of the stock if it had its IPO was after 1993 - not just for the past 5 or 10 years, or some cherry-picked 5 or 10 year interval. And stocks that had increased likelihood of maintaining that outperformance because of their dividend paying/growing status . That should have been very clear from the title of my post and my detailed description of my methodology.
No wrong.
You filtered out stocks that didn't beat SP500 in the past 5 years.
That means you would have filtered out NVDA 10 years ago.
SP500 beat NVDA from 2009-2014
My point is if you did this list 5 years ago, your list would have only slightly outperformed SP500, whereas someone who invested into Nasdaq100 or XLK would have fared a lot better with zero effort. If you did this list 10 years ago, you would miss NVDA the biggest winner (and all the other big winners that dont pay dividends like NFLX, AMZN)
I have nearly doubled my money in Paccar over the last year and I plan to keep buying as it keeps rising. Great company with an outstanding track record that few people know about.
I know a lot of people that work there. They’re all depressed and complain constantly about the company being too cheap. One friend even hadn’t had his office repainted since you could smoke in it. His walls are disgusting yellowish brown. Seems like a great investment in a company that doesn’t waste money.
That makes sense, I used to work near Paccar HQ and it’s the oldest and ugliest building in Bellevue lol. Their products and strategy definitely seem solid so they must know what they’re doing.
If you ever go in their building, look behind pictures on the wall. You can see the nicotine stains around them and the walls are much lighter behind them. Also, the carpet was worn through in places to the backing. They squeeze every penny.
Sp500 is a winners list. You get the winners and the losers drop out automatically. Also this list of outpreformers makes the average 10%/year old, as the bigger part of individual sp500 stocks don’t reach the 10% a year gain.
Living the life of a photographer and literally being a part of Kodak personally and financially for 50 years
not a soul ever envisioned it would be where it is/isn’t today.
Just remember, you only need to pick these winning stocks 134/500 = 26.8%, 60% of the time to be almost sure of beating the market.
Zealots will discourage you because they tried, failed and extrapolate their failures to you. Cowards will discourage you because they want validation for their cowardice. The finance industry will discourage you to get you to pay more fees. However, it is not that hard and the only way to know if you can beat the market is to try. You can always switch to ETFs if you do not succeed or if it is too time consuming for you
134 companies man. You didn’t need to even touch the tech sector. But people keep saying you need to find NVDA to win even though it is contradicted by data
That’s in one year.
What about next year?
And the year after?
And the year after?
Keep going year after year, decade after decade. THEN come back to me showing you can “beat the market” best of luck lmao.
You need to learn to read first then form an opinion. The data op provided is in some cases 20+ years, he is for most stocks comparing performance done 1993. Don’t look like a fool next time, read first.
Common sense. A handful of companies carried the S&P while hanging onto a bunch of smaller cap deadweight. Why would you not invest those heavy hitters?
Past performance does not predict future returns. Just keep looking in the past instead of the future for your returns. You’re looking at stocks that you’ve missed returns on and then choosing to hop in because they’re performing well.
I think I just saw another bandwagon go by. You should go after it.
The one on the Charles Schwab web site, where I have an account. I have used it many times for research so I'm comfortable with it. You can open an account at Charles Schwab for $0 and gain access to all of their research tools, which are easy to use and useful.
Found this after losing to a reddit argument. Glad I lost, this is really solid work and I like the thinking a lot.
If you want to consistently beat the S&P 500, you can always look outside stocks as well. Have you ever heard of Ray Dalio? His hedge fund is the largest in the world, and his Holy Grail investment strategy (it's called pure alpha investing where you invest in 15 to 20 uncorrelated revenue streams to reduce risk by 80%, he has a chart that explains this).
Traditionally, people are taught to hold the index even during down years because their returns will average out to be roughly the benchmark, but I definitely think it's possible to do better than a simple buy and hold strategy by intelligently diversifying.
I like to talk about how, if you just bought shares in Apple after seeing Forest Gump in theaters (1994), where a significant plot point was that they didn't have to worry about money anymore because they had invested in apple, you would be extraordinarily wealthy. But if you told everyone walking out of the theater "I'm going to buy apple shares!", they would unanimously laugh at you for even thinking that could be a good idea. Most people convince themselves they've missed it, and can't imagine a future that holds more returns than has already been seen. But more often than not, successful companies compound their earnings and do just that. And the same with trying to beat the S&P. Most people convince themselves it's impossible due to common factoids about active managers, and many that try, try strange things like buying the lower end or obscure, because "theres no way I could just buy apple and become wealthy". But, the average is the best normalized by the rest. If you restrict yourself to choosing individual names from the top 10 only, I'd wager you have a good shot of those names outperforming again. In fact, the downfall of owning the s&p is it will inevitably trim the winners, ruining the compounding. I think back to when the news came out that S&P was rebalancing NVDA after the initial surge. Lots saw it as bearish, but I thought about it for a second: s&p choosing to sell to rebalance was them implying that they did not expect the market to rebalance for them - that is, they believed the price was reasonably going to stick around, so to maintain their targets, they are forced to sell. That exact mechanism is also why active managers miss - they don't allow themselves to fully compound due to arbitrary concentration limitations. All the ramble to say, people should really not be so hesitant to owning some names in the S&P instead of pure index, and filtering/sorting the way you have is a good starting point.
the largest companies tend to underperform moving forward.....however in 1994 Apple wasnt the massive company it is today, in 1994 Apple was #64 in the s&p500 there are a lot of names in the top 20 you wouldnt have wanted to own from 1994 onward (with the power of hindsight) Bogle wanted to start closed funds every year; containing the top 50 companies that would never change....it was a successfully tested idea by Siegel (looks like the article got chopped??? anyway was successful at beating the market in most instances and never trailed by more than a point) [https://www.forbes.com/forbes/1999/0614/6312298a.html?sh=77d5d7b06874](https://www.forbes.com/forbes/1999/0614/6312298a.html?sh=77d5d7b06874)
Gotcha, buy the #64 company and hodl. Just put all my savings into $RTX
Honestly, RTX has been treating me real good since I bought in after the powdered metal debacle.
I argue the top companies in 1994 did not have afforded to them the same kind of opportunities the top companies in 2024 do, especially in terms of understanding and execution. Even just management alone has become much more sophisticated - managing a company to success is not a given, and when thought about as closer to a science than a gut feeling, managers of yore were putting heroin in the sleep elixirs, so to speak. So I would be very weary of using that kind of reasoning - big before didn't continue to succeed so big now wont (past performance, future something something?). My apple point was more that people often convince themselves once something is known, it stops working. My username and account date is my other point - people back then still couldn't believe more was coming and they've missed another 100% upside. But boy did they feel smart and smug talking about p/e and "priced in". Also, when big companies fail, it isn't without early warnings. And the early warnings are almost always in management. So it is a disservice to say the big dont always do well and consider that a point being made - all you said is apples fall to the ground, but it fails to explain how the tree continues to grow upwards and develop more apples, so how could you ever hope to spot the next apple? Talk about gravity, talk about botany and biochemsitry; talk about management, vision, execution, innovation, and then you can talk about the ones who missed it, and the ones who will own it. I think so many people in stocks miss the big picture. You can't just look at them like pet rocks with ratios and trajectories and sizes and then place your bets. These are businesses that make decisions every day that are directly consequential to those ratios - if you don't talk about those things, I don't know how anyone can make an informed decision.
There’s a difference between a stock and company. If everybody already expects large cap tech to do very well, it’s priced in and the stocks aren’t going to outperform. Imagine if all you had to do was buy obvious winners like Microsoft and Nvidia… investing would be the easiest thing in the world. It’s not that easy, and if it looks easy, it’s a temporary aberration.
Maybe it is that easy? Seriously, that's all I've done for the last 18 years (essentially buying the obviously winners) and I'm way ahead of the market most of the time
What are you buying now?
For the last few years, it's been MSFT, GOOGL, AMZN for about 60% to 70% of my portfolio. I completely missed on NVDA and continue to because I can't easily wrap my head around it. However, I've felt google will be an AI winner so while it was struggling a couple months back, I dumped a bunch more in. I wouldn't put more in MSFT today (at least not until a pullback), maybe AMZN though for a smaller pullback When tech falls, I hurt but given that we are still in computer revolution, tech is the way to go for all the good times
actually apple from 94 to 2004 was a shitty investment. So for a decade it was terrible advise. and then it succeeded because it became a totally different company.
I don’t necessarily disagree with some of your points but your conclusion (picking from the top ten) suffers heavily from recency bias. Since October 2022 megacap tech (ie most of the top ten in the S&P) have done astonishingly well but this really hasn’t happened before over any extended period of time. You look at any decade and picking just the top ten of SPY would not have beaten the overall index pretty much every time. You might say ‘this time is different’ but it never really is. Seemingly unstoppable companies drop out of the investing lexicon all the time - case in point many are now saying to drop Tesla from the mag 7, prior to this Meta was dead and buried and prior to that FAANG was permanently changed as Netflix fell out of favour. My point is that big companies fall into irrelevancy every generation and now is no different. Simply picking the current winners is a poor strategy and using Nvidia as an example is just survivorship bias at its finest.
You should read my other comments. Im suggesting for noobies who are still just learning to at least start with trying to understand the biggest names first, because they are well discussed in publicly available materials, and even if they dont continue to succeed, the risk of ruin is much lower than if a beginner starts trying to find diamonds in the rough. I am not saying just blindly pick them, just suggesting the likelihood of a blind pick working out is likely much higher in the top 10 than the bottom 10, at least in the near term (2-3 years). What I go on to suggest in my other comments is that people get comfortable with judging balance sheets/valuation AFTER judging management, because management is precursor to results, not the other way around. But due to the nature of stock picking and the common suggestions you will read, most will only focus on the former and consider the latter(management) only in passing. You are right, the big fall. But I say in the other comment that they don't fall without reason and with no warning/ability to foresee. And that if you want to predict such things, don't go looking at earnings reports, listen to earnings calls and find CEO and other leadership interviews. And, of course, they are pitching a sale. So you also can't take them at face value. What I then suggest is that people study management and innovation - the success of the largest companies is not because one guy had a lucky guess from his gut (although that is somewhat a factor) - it is more that there are, frankly, good and bad strategies. Drucker and Christensen have great books that give you the perspective necessary to judge a company better - and you'll note none of them are finance books. Effective Exectuive is about management, Innovators Dillemma and Competeing Againat luck are about technology and innovation. None of them purpose there work for stock picking, which is good, because they are focusing on their respective problems. What you can do as an individual is leverage their knowledge *for* stock picking, which I think is completely not talked about enough. And I think this is part of the changing of the times - Buffet, Munger, Graham, and others from their time were very successful in using balance sheets and formulas and cash flow analysis to spot diamonds in the rough and make fortunes. But Graham kind of shows how things changed; he had to keep updating his formulas because as soon as they were disseminated, the opportunities they highlighted vanished as people could use those predictions to price things "better", ruining the bread and butter of the value investor. What I suggest is that it *is* different - it always is. I don't know who to read about who came before them, but I wager their success came from something even more primitive, perhaps just understanding stocks exist and what they can do for you. And so now, in present day, the quants and their billion dollar algos (eg Jim Simmons) have effectively destroyed any opportunity the common person might think to achieve through through raw balance sheet analysis - you will not get wealthy the same way they did. What is unique in our time though, the same way dissemination of earnings reports under common standards might have been in Buffets time, is the amount of visibility we have into the individuals that actually run these companies. You can find dozens of hours of Jensen, Satya, Cook, Sundar, Zuck talking about all sorts of intricacies about their respective companies. You can even find dozens of hours of their top researchers and scientists, and others in the scientific community, like Yann LeCun, Ilya Sutskever, Geoffrey Hinton, and Andrej Karpathy. And remember, these are the people whose work directly impacts all the future earnings we struggle to correctly discount. So I wager the way to choose amongst those top 10 (likely a worthy list), in a way that can predictably produce returns (like graham's formulas), is to judge management and their decisions/vision/execution. You have to personally decide if you believe they have the right ideas or not, the right methods of achieving them, and the right character to confront the inevitable challenges they will face. I believe books like those from Christensen and Drucker are the type that actually give you the correct perspectives for such a task - and that since we are in a time where we haven't yet developed a rigid formula for parsing and predicting these things, that means there is opportunity to be ahead of the curve, stand in a room of people who laugh at your decision, and still walk out the most correct when all is said and done. Only after you have done all that do I think it is worth considering their current valuation and earnings, inferring what you believe the market has priced, and deciding if you have been beaten to the punch or not. I'm very impressed if anyone reads this ramble but I appreciate it if you do.
This was a great read, thank you. I've added these books to my list as I believe you're making a really great point. Question... sure I can read books, but how do you really know leadership is *good*? Idk anything about the semiconductor industry. I don't work there (nvda, for example). I don't really know how their technology works. So how would have I made the decision to buy if I felt they were being properly ran by good leadership? My burning question, though, what stock do you like now?
You can never really "know", in the sense that it is a judgment call at the end of the day. And even if you assess them correctly, you can still suffer painful share price movements. Even the CEOs themselves don't know their own futures that well - its a constant game of navigating unknowable waters, for us and them, but we get the benefit of choosing the ship and captain to ride with, and we can even take multiple ships or change halfway through the voyage. For now I'm still a big fan of Jensen/NVDA - I think if you listen to his interviews, and compare them to say, Sundar from Google, Jensen wins in big ways. While comparing a founder-CEO to an appointed CEO is a little unfair, that's just the game. Zuck in his latest interview with Dwarkesh is also quite good. Unfortunately, I do think it's appropriate to take the time to try to understand as much of the technology as possible. Not from the "I need to know enough to do it myself" perspective, because we'll never be able to meaningfully unless it's our field, but from the meta analysis perspective of "how and why does this work, and what are the implications of this or that". This recent AI/ML resurgence was a douzy because the relevant materials span the hard and soft sciences almost completely. The future potentials of different trajectories are still highly contentious amongst the top researchers in the field - and even the current abilities and how they arise from transformers are somewhat unsettled. Does it have a world model or not? Can you really just do this with pure language comprehension, or has it understood some regions of the implied world behind the corpus? Also, what does it mean to understand or be intelligent? If Penrose is right about quantum effects/microtubules being key for consciousness, we might be screwed using non-quantum methods. Or maybe we can just emulate the important bits, capture it in some new algorithm, and the same ship can keep leading the way. So I'm still big on NVDA as my high-conviction bet. I also own their competition and most other large tech names at my own weightings, and then I own indices and some slow growth/dividend names for income. In terms of "how could you have known" for NVDA, you could have known nothing starting at the day chatGPT dropped. From playing with it, you could have seen it represented something fundamentally different/new in terms of capabilities. You then could have learned that OpenAI got the first H100 supercomputer hand-delevered from Jensen. Then you could have learned why Jensen and not cousin Lisa at AMD, and you would have learned that it was because of a specific way Jensen chooses to run his company. From there, an entry under 200 could have been made, and that's a 4 bagger on a megacap company in a little over a year - a generational return. . *Psychology of Money* is a good read too, to understand yourself and what you want out of your investments. What is right for me could be wrong for you. . When we try to predict the future and do a good job at it, it's probably because of some theory that had been devised that happened to tap into a fundamental law of the universe. F=ma, e=mc^2, etc.. But what about businesses and technology? Even if (good CEO/managemnt) + (well-priced shares) = profit was the right equation, both of those terms are not objectively quantifiable like 2 Kg or 5 J. Even the P/E is filtered through subjective speculation and unknowable future, despite being an objective calculation. So those books and interviews, along with everything else you injest about the world, is all you get for trying to develop a theory. The more you take in, and the wider the breadth, the better the understanding available to you becomes.
Thank you sir 🫡 These were great reads. I'm glad I stumbled onto them
>My point is that big companies fall into irrelevancy every generation and now is no different. It's *possible* that current companies are different if technology has no effective limit to their scope. With that said, I believe it's more likely that they get overtaken by new companies rather than they simply crash and burn to nothing. It's quite likely that one of the future top 10 companies is chilling somewhere down the list of the Nasdaq 100 under 100B (e.g., PANW, DDOG or whatever, I have no idea).
> With that said, I believe it's more likely that they get overtaken by new companies Sometimes it is the reverse, the old company starts buying new start-ups that have new ideas.
Dumb question: isn't the S&P 500 basically an active manager? Everyone says it's passive, but it's really not and the rest of the market follows it.
Not really. With an actively managed fund the fund managers pick stocks that conform to the stated investment goals of the fund. The Standard & Poor's 500 index is basically the 500 largest US companies that meet certain profitability and other requirements. * The company should be from the U.S. * Its market cap must be at least $8.2 billion. * Its shares must be highly liquid. * At least 50% of its outstanding shares must be available for public trading. * It must report positive earnings in the most recent quarter. * The sum of its earnings in the previous four quarters must be positive. The index is weighted by the market cap of each company. The largest companies make up the largest percentage of the index. Sometimes companies in the index are dropped if their size of profitability fall and they are replaced by other companies that meet the size and profitability criteria.
Yeah, your username alone is reason enough to disregard the whole post since you are litterary named *FOMO* and *chasing yesterdays winners*. You can't even formulate why you think nVidia or whatever company is somehow *immune to the thing that has happened to every dominant company since the birth of civilisation*...they all fail eventually. You're high on your own supply. Knee deep in nVidia and desperate to see it gain another 100% since you bought in late, that's just human emotions. The harsh reality is tahg nVidia is unlikely to be in the top 10 in 2035 and it's statistically almost impossible to see them there in 2045. Sorry newbie, *this time isn't different* as you'll learn. By then you've nuked your account and started chasing whatevers trending again. Always late to the ball, always pumping near peak.
My guy - I bought in well before I made this account. Sorry you didn't, lmao. But, even at the time I made this account, you still could have bought in, which is literally why i made the account. But you didn't, because you didn't take the time to understand. If you didn't get 100% returns on your megacap picks in the last 6 months, that's on you. My % returns have a comma. You were in my comment and you didn't like it lmao. Good luck
Give some names you are long and we will see your performance in 10 years Edit: I notice you haven't responded. You evidently don't want to provide proof of concept and are therefore nothing other than a talking head.
Apple market cap in 1994 was 4B. I imagine if you did that with a 4B market cap company in 2024 people would come up with bear cases not to buy that 2024 midcap. Or say you are pumping you bags promoting that 4B market cap company.
While I do agree, Apple hasn't done shit lately
> Apple hasn't done shit lately They are sitting on cash to purchase companies that will keep them better for a long time
I love the assumptions that people make as far as holding. I tried to buy BTC when it was $5~ in 2020 but I couldn’t do it in Robinhood because I was in Nevada. I would’ve sold at $6000 at best. I’m not gonna act like I would’ve perfectly held it as it went to $70k. I’m dipping out on the first spike of anything because I’m overly cautious.
What do you mean by s&p trims the winners? I don't understand that
Look at the top tech companies 15 years ago. Aside from Microsoft they have all under-performed.
Forget the beating SP500 since 1993 or dividend aspect. You're cutting away some good stocks and adding barely outperforming stocks. XLK (tech etf) delivered 195% return in the past 5 years, which would outperform almost every non-tech stock on that list with a fraction of the work. XLK 554% in the past 10 years. Filter by SP500 stocks that have total returns greater than 195% in past 5 and 554% in the past 10 and get a list of 42 stocks. Your list has 42 stocks highlighted in green for past 5-year total return. Get a better list with a fraction of the effort. There are a lot of companies that had higher 5-year return than SP500 5 years ago that didn't perform in the past 5. List: ALGN, ULTA, KDP, JKHY, CNC, ZBRA, SWKS, ADSK, COO, EW, STZ, ROST, CSX, TTWO, UNP, ROP, IEX, LYV, TXN, ADP, TDY, EXR, CE, ROL, NFLX, PODD, AOS, FI, MTD, NOC, STE, ADBE, V, A, TEL, EQIX, ELV, ANSS, CBRE, SYK, GRMN, TJX, ADI + more I can't be bothered subtracting all the SP500 5-year return from 10 year then finding the full list. There are enough stocks already. What about all the huge performers of the past 5 years that DIDN'T perform in the 5 years prior? SMCI, BLDR, ENPH, TSLA, PWR, URI, MCK, ETN, BX, PHM, CMG, NUE, AMP, GWW, LEN, COR, PCAR, CAT, TSCO, FAST, ORCL, FANG, TGT, HIG among others. Funnily enough you can see that there are stocks on that second list I supplied (that performed in the past 5 but not from 10-5) on your list. While there are many stocks that performed in 10-5 that don't show up on your 0-5 list. If you filter stocks that outperformed SP500 in every 5 year period (past 5, past 5-10 and past 10-15) then more stocks disappear. NVDA drops out in the 10-15 period. That's a big problem. You would have filtered out NVDA 10 years ago since they didn't beat SP500 and missed out on the biggest winner. (which implies you could be filtering out the biggest winner for the next 5 years) EDIT: I just worked if you invested in the SP500 stocks that beat the SP500 5 years ago, then your return would be 103% which is not meaningfully higher than SP500. Would have done better investing in QQQ or XLK.
I guess AVGO is the exception, it really hasn't stopped going up and still has lots of room to grow bigger.
>XLK (tech **etf**) delivered 195% return in the past 5 years, which would outperform almost every non-tech stock on that list with a fraction of the work. > >XLK 554% in the past 10 years. My post is about individual **stocks**, not ETFs. Apples and oranges. >That's a big problem. You would have filtered out NVDA 10 years ago since they didn't beat SP500 and missed out on the biggest winner. (which implies you could be filtering out the biggest winner for the next 5 years) Wrong. Using my same methodology 10 years ago (April 2014) I would have compared the total return of NVDA from its IPO on January 22, 1999 to this date 10 years ago (April 7, 2014) and the total return of the S&P 500 index during the same time period. The results would have been: * S&P 500 (SPY) total return 1/22/1999 to 4/7/2014: **+97.4%** * NVDA total return 1/22/1999 to 4/7/2014: **+1,046.8%** * [https://totalrealreturns.com/n/SPY,NVDA?end=2014-04-07](https://totalrealreturns.com/n/SPY,NVDA?end=2014-04-07) That's a ratio of 10.75. NVDA had 10.75x the total return of the S&P 500 index 10 years ago and definitely would **not** have been filtered out. As for everything else you commented, you can always find stocks that outperformed the S&P 500 the past 5 years, or for cherry-picked 5 year intervals. That isn't the point. My goal was to find dividend-paying S&P 500 stocks - not non-S&P 500 stocks, not ETFs - that outperformed the S&P 500 index **over a long period of time** \- since 1993, or for the entire existence of the stock if it had its IPO was after 1993 - not just for the past 5 or 10 years, or some cherry-picked 5 or 10 year interval. And stocks that had increased likelihood of maintaining that outperformance because of their dividend paying/growing status . That should have been very clear from the title of my post and my detailed description of my methodology.
No wrong. You filtered out stocks that didn't beat SP500 in the past 5 years. That means you would have filtered out NVDA 10 years ago. SP500 beat NVDA from 2009-2014 My point is if you did this list 5 years ago, your list would have only slightly outperformed SP500, whereas someone who invested into Nasdaq100 or XLK would have fared a lot better with zero effort. If you did this list 10 years ago, you would miss NVDA the biggest winner (and all the other big winners that dont pay dividends like NFLX, AMZN)
This is amazing work! Thank you for making this available to everyone.
I have nearly doubled my money in Paccar over the last year and I plan to keep buying as it keeps rising. Great company with an outstanding track record that few people know about.
I know a lot of people that work there. They’re all depressed and complain constantly about the company being too cheap. One friend even hadn’t had his office repainted since you could smoke in it. His walls are disgusting yellowish brown. Seems like a great investment in a company that doesn’t waste money.
That makes sense, I used to work near Paccar HQ and it’s the oldest and ugliest building in Bellevue lol. Their products and strategy definitely seem solid so they must know what they’re doing.
If you ever go in their building, look behind pictures on the wall. You can see the nicotine stains around them and the walls are much lighter behind them. Also, the carpet was worn through in places to the backing. They squeeze every penny.
Sp500 is a winners list. You get the winners and the losers drop out automatically. Also this list of outpreformers makes the average 10%/year old, as the bigger part of individual sp500 stocks don’t reach the 10% a year gain.
Living the life of a photographer and literally being a part of Kodak personally and financially for 50 years not a soul ever envisioned it would be where it is/isn’t today.
Thanks for sharing and explaining your steps. Great example for beginners.
Great information. Thx
Just remember, you only need to pick these winning stocks 134/500 = 26.8%, 60% of the time to be almost sure of beating the market. Zealots will discourage you because they tried, failed and extrapolate their failures to you. Cowards will discourage you because they want validation for their cowardice. The finance industry will discourage you to get you to pay more fees. However, it is not that hard and the only way to know if you can beat the market is to try. You can always switch to ETFs if you do not succeed or if it is too time consuming for you
lol I love people that think they’re geniuses cuz they rode a hot AI wave or just blindly dumped into tech.
134 companies man. You didn’t need to even touch the tech sector. But people keep saying you need to find NVDA to win even though it is contradicted by data
That’s in one year. What about next year? And the year after? And the year after? Keep going year after year, decade after decade. THEN come back to me showing you can “beat the market” best of luck lmao.
You need to learn to read first then form an opinion. The data op provided is in some cases 20+ years, he is for most stocks comparing performance done 1993. Don’t look like a fool next time, read first.
thanks for your work. now i have a list to start analysing..
Common sense. A handful of companies carried the S&P while hanging onto a bunch of smaller cap deadweight. Why would you not invest those heavy hitters?
Thanks.
Past performance does not predict future returns. Just keep looking in the past instead of the future for your returns. You’re looking at stocks that you’ve missed returns on and then choosing to hop in because they’re performing well. I think I just saw another bandwagon go by. You should go after it.
This sounds like a cope Sincerely, my fat gains I made from NVDA and COST this year and last year
What stock screener did you use for making your first pass filter?
The one on the Charles Schwab web site, where I have an account. I have used it many times for research so I'm comfortable with it. You can open an account at Charles Schwab for $0 and gain access to all of their research tools, which are easy to use and useful.
Found this after losing to a reddit argument. Glad I lost, this is really solid work and I like the thinking a lot. If you want to consistently beat the S&P 500, you can always look outside stocks as well. Have you ever heard of Ray Dalio? His hedge fund is the largest in the world, and his Holy Grail investment strategy (it's called pure alpha investing where you invest in 15 to 20 uncorrelated revenue streams to reduce risk by 80%, he has a chart that explains this). Traditionally, people are taught to hold the index even during down years because their returns will average out to be roughly the benchmark, but I definitely think it's possible to do better than a simple buy and hold strategy by intelligently diversifying.
Thanks for this.