Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. – Calvin Coolidge
Of all the managers with access to million-dollar data streams, teams of quants, and whose only job is to outperform the market, only 1 in 16 were able to do so consistently. It becomes ludicrous when you break down the S&P 500 strategy – “buy big stocks”! That’s it. Simply put, the S&P 500 index just tracks the top 500 profitable companies in the U.S. stock market.
If you look at it closely, the S&P 500 is a momentum strategy. They eventually cut companies that don’t grow at the rate of the market (companies that fall out of the list) and add companies that are growing above market rates which become big enough to be included in the top 500 list. The very nature of a market-cap weighted index means that the best companies eventually rise to the top and get added to the index and the losers fall out. The cherry on top is that they let the winners ride as long as they are present in the top 500 list and are profitable!
The strategy works because they have remained consistent with it over the past 5 decades. The index committee does not change strategy based on what’s happening in the market. They don’t wake up one day and say “you know what, tech stocks are booming and we should pivot to tech” or “the Fed is planning to increase interest rates – we should cash out and wait for the dip.” They have consistently stuck with the strategy of just buying the 500 biggest profitable stocks in the market!
How to beat the market?
If the market benchmark is based on “buy the biggest companies that are profitable”, shouldn’t we be able to do better by going just one or two steps deeper?
That’s precisely what we are doing at Market Sentiment. We use stock market and alternative data for backtesting strategies that reliably beat the market benchmarks. If you’re the kind of investor who doesn’t take stories at face value, wants the data to back the story, and learn more about investing – Market Sentiment is for you.
Over the past 2 years, we have analyzed over 100 strategies and quickly grown to become one of the most widely read finance newsletters on Substack with over 35,000 subscribers. Finding the ever-elusive edge is our passion and the content is borne out of our team's deep experience in equity analysis, quantitative finance & statistical analysis.
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Minimizing the downside using The Permanent Portfolio
Why you should always buy the dip - Based on 30+ years of data
DCA Strategy for the Crypto Market
Holding on to high-quality companies with the Coffee can portfolio
How to hedge for outlier events using tail hedging
Identifying long-term trends using Warren Buffett’s favorite technique
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