Can This Portfolio Crush the Market Over the Next 5 Years?

Individual investors can either go the passive route, in which case they're likely to match the performance of the S&P 500 or Nasdaq Compositive Index, or they can choose to actively pick stocks. The latter choice is more difficult to successfully execute, but for someone who thinks he or she possesses the necessary skills, it might make sense. 

For investors looking to beat the market over the next five years, I think it can be a simple course of action. By investing in the following three positions in equal weights, this goal might be achievable. To be clear, concentrating into just three assets isn't for the faint of heart, especially if you lack conviction. But because of outsize pessimism rattling markets right now, tech-minded investors can focus on buying only the best assets out there at steep discounts. 

1. Amazon 

First on this list is Amazon (AMZN -2.56%). According to Statista, Amazon commands 38% of total e-commerce spending in the U.S. With $80.1 billion of 2022 sales, Amazon Web Services (AWS) is the leading cloud-computing business in the world. In addition, Amazon posted 23% year-over-year growth in ad revenue in the fourth quarter, another promising segment. Amazon's focus on being the most customer-centric company has resulted in its dominating other tech subsectors. 

Because e-commerce sales as a share of total retail in the U.S. are at just 15% right now, Amazon still possesses a huge growth runway as online shopping continues to become even more popular over time, despite its already large revenue base. What's more, with total spending on cloud computing and infrastructure services estimated to be $1.6 trillion by 2030, AWS has tremendous potential as well. 

As of this writing, Amazon's stock is down 46% from its peak, spurred by a general risk-off sentiment from investors that started in late 2021. Making things worse was an unfavorable view of tech stocks in particular. But shares are now trading at a price-to-sales ratio of just under 2, substantially below the trailing 10-year average valuation and near the cheapest the stock has sold for since March 2011. This bodes well for Amazon's potential stock returns over the next five years. 

2. Alphabet 

The second position to add to a three-holding portfolio is Alphabet (GOOGL -1.23%) (GOOG -1.10%). With $59 billion in advertising revenue in Q4 2022, the innovative tech enterprise is the leader in its industry. In fact, with its near monopoly in the search market, it's hard to believe that Alphabet's competitive position is under any threat, even with the widely publicized emergence of artificial intelligence, particularly as it relates to Microsoft's inferior Bing search engine. 

Google Cloud Platform (GCP) is the company's smaller rival to AWS. Revenue of $7.3 billion in Q4 2022 (ended Dec. 31) was up 32% year over year, a faster growth rate than what AWS was able to post. And with YouTube, Alphabet is a formidable player in the streaming space. According to Nielsen, YouTube was the most popular streaming service in the U.S. based on TV hours watched in February, edging out Netflix. 

Alphabet shares hit their all-time high in November 2021. But because of the same adverse factors that hurt Amazon's stock, Alphabet shares are still about 30% off their peak. Macroeconomic concerns, and their impact on the digital advertising market, certainly helped to pressure the stock even more. But smart investors fully understand that Alphabet's current price-to-earnings multiple of 23 signals a screaming buying opportunity. 

3. Bitcoin 

The last asset on this list isn't a company, but a cryptocurrency. An equally weighted portfolio of Amazon, Alphabet, and Bitcoin (BTC -0.12%) could produce monster returns over the next five years. As a matter of fact, now might be one of the best times to buy Bitcoin. 

There are a few reasons I believe this to be the case. Every four years, Bitcoin undergoes something called a halving, which cuts in half the amount of new Bitcoin that miners receive for processing transactions. Doing this essentially reduces the inflation rate for Bitcoin, and historically, this event, expected to happen next in spring 2024, has been a bullish catalyst for the top digital asset. 

Another reason to consider buying Bitcoin has to do with the recent turmoil in the banking industry. Bitcoin's whole premise centers on people's ability to self-custody their money, while also creating a financial instrument that isn't controlled by a central authority. As we've seen, even seemingly sound banks can have issues that no one is aware of, even regulatory bodies.

Since Bitcoin reached an all-time high price of nearly $69,000 in November 2021, the world's most valuable cryptocurrency is down 59%. This looks like a smart time to be a buyer.