The 2-Stock Strategy That Destroyed the Markethttp://www.fool.com/investing/general/2012/02/19/the-2-stock-strategy-that-destroyed-the-market.aspx Alex Dumortier
February 19, 2012
There's a two-stock portfolio that handily beat the market over the past decade with virtually the same volatility -- in fact, it experienced fewer 10% monthly losses than the S&P 500 did during that period. In my opinion, there's also a pretty good likelihood that the same portfolio will beat the market over the next decade (but not by the same margin). Thinking through this strategy will help you to see the goal of beating the market in a different light, particularly if you invest in or want to invest in high-growth stocks.
Violating finance theory for fun and profits
I ran the numbers on a portfolio initiated on Jan. 31, 2002, with a 95% weighting in the S&P 500 and a 5% position in Apple. Over that period, a $10,000 investment in the SPDR S&P 500 ETF would have grown to $13,998 for a meager 3.5% annualized return (Vanguard's ETF didn't exist in 2002). This "Apple-juiced" portfolio, on the other hand, weighed in at $31,765 for a highly satisfactory 12.3% average return.
The Apple-juiced portfolio
There is a compromise strategy that addresses that concern: rebalancing the portfolio to the original weights on an annual basis, such that at the end of every calendar year, Apple once again represents 5% of the portfolio. That strategy, "Apple-light" if you