Buying only top 10 S&P500 companies every year

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Poorman
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Buying only top 10 S&P500 companies every year

Post by Poorman »

The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
retiredjg
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Re: Buying only top 10 S&P500 companies every year

Post by retiredjg »

The "right direction" is not to buy this much in individual stocks. Buy the market - either total stock or 500 index or something similar.
Topic Author
Poorman
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

retiredjg wrote: Wed Apr 01, 2020 9:29 am The "right direction" is not to buy this much in individual stocks. Buy the market - either total stock or 500 index or something similar.
:oops: That wasn't my question. Did I not post in the "Theory" section.
retiredjg
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Re: Buying only top 10 S&P500 companies every year

Post by retiredjg »

But you did say 'Or point me in the right direction.' :happy

Sorry, I usually don't even notice what forum a question is on. I'll be happy to delete my answer if you want.
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JoMoney
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Re: Buying only top 10 S&P500 companies every year

Post by JoMoney »

You can get the annual reports from S&P index funds (like Vanguard's VFINX) from the SEC EDGAR filings database. (You'll find the funds holdings and top 10 stocks there)
https://www.sec.gov/cgi-bin/browse-edga ... cd=filings
https://www.sec.gov/cgi-bin/browse-edga ... cd=filings

You can use PortfolioVisualizer to get the returns of the stock portfolio each year.
https://www.portfoliovisualizer.com/backtest-portfolio

You'll run in to problems with stocks that are no longer listed because they merged, were bought out, or otherwise no longer listed under that corporate entities name.

I don't understand why you would want to hold such a portfolio, perhaps if you had some sort of hypothesis about what that portfolio would uniquely do it could be looked at in some other way.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
delamer
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Re: Buying only top 10 S&P500 companies every year

Post by delamer »

What do you mean by top ten holdings?

Are you talking about capitalization, price increase, total return, etc.?
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Topic Author
Poorman
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

delamer wrote: Wed Apr 01, 2020 9:53 am What do you mean by top ten holdings?

Are you talking about capitalization, price increase, total return, etc.?
Top 10 largest holdings
Topic Author
Poorman
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

JoMoney wrote: Wed Apr 01, 2020 9:40 am I don't understand why you would want to hold such a portfolio, perhaps if you had some sort of hypothesis about what that portfolio would uniquely do it could be looked at in some other way.
The hypothesis is let's see how it performs, then go from there.
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Brianmcg321
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Re: Buying only top 10 S&P500 companies every year

Post by Brianmcg321 »

So you’d buy high then sell low.

That should work.
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tombonneau
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Re: Buying only top 10 S&P500 companies every year

Post by tombonneau »

I feel I saw a blog post or article where someone did the math on something similar to this. Don't quote, might have been Morningstar? Anyway, short of it is that it wouldn't have done as well as the S&P, and in fact IIRC it would have done much worse.
Rus In Urbe
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Re: Buying only top 10 S&P500 companies every year

Post by Rus In Urbe »

*
I guess I've been around so long that what goes around comes around!

Do some research and you will find that the original MOTLEY FOOL had invented and promoted almost exactly such a scheme in the early to mid-1990s. You can find that original book probably online somewhere. You can read a short article about the company on wikipedia.

The scheme (and I don't use that word pejoratively) did not produce good results in the long run.

Index funds.

Much better option. More diversified and therefore less risky.

Good luck to you. Rus. :beer
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Topic Author
Poorman
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

tombonneau wrote: Wed Apr 01, 2020 10:00 am I feel I saw a blog post or article where someone did the math on something similar to this. Don't quote, might have been Morningstar? Anyway, short of it is that it wouldn't have done as well as the S&P, and in fact IIRC it would have done much worse.
Thank you, I'll try digging into Morningstar and see what that was.
Topic Author
Poorman
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

Brianmcg321 wrote: Wed Apr 01, 2020 9:59 am So you’d buy high then sell low.

That should work.
Useless comment. Thanks
chevca
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Re: Buying only top 10 S&P500 companies every year

Post by chevca »

Are you asking this because you think the top 10 companies make up most of the returns for the S&P 500? That's probably a good assumption. I haven't checked nor do I want to. But, I'd think you could compare the DOW and the S&P 500 returns to get a pretty good idea what the top 10 or 30 companies would return compared to the S&P. They're pretty much the same, is what it comes down to.

The other part is, how would one do this? If one is using a 401k, IRA, and all, it would be tough to implement across accounts.
Jebediah
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Re: Buying only top 10 S&P500 companies every year

Post by Jebediah »

Bridgeway has a fund that tracks the top 20 or 30 (or something) companies. I think it tracks the SP500 pretty closely.
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Re: Buying only top 10 S&P500 companies every year

Post by MotoTrojan »

Poorman wrote: Wed Apr 01, 2020 10:04 am
Brianmcg321 wrote: Wed Apr 01, 2020 9:59 am So you’d buy high then sell low.

That should work.
Useless comment. Thanks
How so? By definition you are saying that you are selling the companies that have underperformed as they have not kept up with the companies remaining in the top 10 or the ones that take it over, and then you are buying companies that have outperformed some of the top 10 in order to get in. You are literally by design buying high and selling low.

I invest in the opposite way, with a good chunk of my US Large Cap allocation in fundamental indexes which sell what has outperformed and buy what has underperformed each quarter. Good luck.
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HomerJ
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Re: Buying only top 10 S&P500 companies every year

Post by HomerJ »

Poorman wrote: Wed Apr 01, 2020 9:26 amWhat if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...
Sounds like a recipe for failure.

You are only going to buy stocks AFTER they have risen high enough to make the top 10, and then you are going to sell them AFTER they have fallen enough to drop out.

Edit: I agree with Moto above. You are designing a system that buys high and sells low.
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vineviz
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Re: Buying only top 10 S&P500 companies every year

Post by vineviz »

Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
This is pretty much the opposite of a successful strategy. Historically, you'd have been much better off building a portfolio that owned everything in the S&P 500 EXCEPT for the top 10 stocks.

I only went back to 2000 because some top 10 stocks prior to that have gone bankrupt and/or merged out of existence and PortfolioVisualizer can't handle that. But here's what it looks like.

Image

Image

"Dynamic allocation" is putting 10% into each of the ten largest stocks each 12/31 and holding for a year. Unfortunately I can't seem to link to a dynamic allocation in PortfolioVisualizer but I'll put the weights below.

Code: Select all

Start Date	Assets
Allocation history
12/01/2000	100.00% Cash (CASHX)
12/31/2000	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Cisco Systems, Inc. (CSCO)
10.00% Intel Corporation (INTC)
10.00% Pfizer, Inc. (PFE)
10.00% Merck & Company, Inc. (MRK)
10.00% American International Group, Inc. (AIG)
12/31/2001	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Intel Corporation (INTC)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% American International Group, Inc. (AIG)
12/31/2002	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Merck & Company, Inc. (MRK)
10.00% American International Group, Inc. (AIG)
12/31/2003	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Cisco Systems, Inc. (CSCO)
10.00% Intel Corporation (INTC)
10.00% Pfizer, Inc. (PFE)
10.00% American International Group, Inc. (AIG)
12/31/2004	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Bank of America Corporation (BAC)
10.00% American International Group, Inc. (AIG)
12/31/2005	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Altria Group (MO)
10.00% Procter & Gamble Company (PG)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Bank of America Corporation (BAC)
10.00% American International Group, Inc. (AIG)
12/31/2006	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Altria Group (MO)
10.00% Procter & Gamble Company (PG)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Bank of America Corporation (BAC)
10.00% American International Group, Inc. (AIG)
12/31/2007	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Cisco Systems, Inc. (CSCO)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% Bank of America Corporation (BAC)
12/31/2008	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Walmart Inc (WMT)
10.00% Pfizer, Inc. (PFE)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2009	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2010	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2011	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Pfizer, Inc. (PFE)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
12/31/2012	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Alphabet Inc. (GOOGL)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
12/31/2013	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Alphabet Inc. (GOOGL)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Wells Fargo & Company (WFC)
12/31/2014	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Wells Fargo & Company (WFC)
12/31/2015	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Wells Fargo & Company (WFC)
12/31/2016	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2017	10.00% Apple Inc. (AAPL)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Alphabet Inc. (GOOGL)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Alphabet Inc. (GOOG)
12/31/2018	10.00% Apple Inc. (AAPL)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Alphabet Inc. (GOOGL)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Alphabet Inc. (GOOG)
12/31/2019	10.00% Apple Inc. (AAPL)
10.00% Microsoft Corporation (MSFT)
10.00% Amazon.com, Inc. (AMZN)
10.00% Alphabet Inc. (GOOGL)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Alphabet Inc. (GOOG)
10.00% Visa Inc. (V)
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climber2020
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Re: Buying only top 10 S&P500 companies every year

Post by climber2020 »

Poorman wrote: Wed Apr 01, 2020 10:04 am
Brianmcg321 wrote: Wed Apr 01, 2020 9:59 am So you’d buy high then sell low.

That should work.
Useless comment. Thanks
I think this is the most relevant comment so far. You're dumping losers after they've lost value and buying winners after they've already gone up in price. That's the opposite of what you ideally want.
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David Jay
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Re: Buying only top 10 S&P500 companies every year

Post by David Jay »

Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
So you think you have stumbled onto a winning formula?

This is where humility comes in - don't you think that if it was easy to make a formulaic "system" to beat the SP500 with just a single screen that someone else would have also figured it out a long time ago? Remember there are hundreds of thousands of people who spend their professional lifetimes trying to outperform the market. The SP500 has been around since 1957, surely thousands and thousands of people over the past 60+ years have tested a screen of the SP500 by market cap.
Last edited by David Jay on Wed Apr 01, 2020 10:19 am, edited 1 time in total.
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chevca
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Re: Buying only top 10 S&P500 companies every year

Post by chevca »

Yes, OP, you might not want to be so defensive. Instead of "useless comment", try asking why or how? Folks are answering your question.
tibbitts
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Re: Buying only top 10 S&P500 companies every year

Post by tibbitts »

Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
Why December? Why not quarterly, or at one of the other quarters? Why not top 5 or top 13? Equal weight or market weight? The number of permutations is staggering, and the differences might be considerable.
DonIce
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Re: Buying only top 10 S&P500 companies every year

Post by DonIce »

vineviz wrote: Wed Apr 01, 2020 10:12 am "Dynamic allocation" is putting 10% into each of the ten largest stocks each 12/31 and holding for a year. Unfortunately I can't seem to link to a dynamic allocation in PortfolioVisualizer but I'll put the weights below.
Did you have to do that manually (i.e. research which stocks made up the top 10 each year and input that table for each year?) Or is there some way to do this kind of analysis automatically on PV?
illumination
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Re: Buying only top 10 S&P500 companies every year

Post by illumination »

Not the same and has different holdings than the S&P500 top 10, but DIA is an ETF with only the 30 companies in the Dow Jones Industrial Average. Just 10 companies make up over 50% of its weighting.

It's actually outperformed the S&P500 since DIA's inception, which I would never have guessed.
crake
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Re: Buying only top 10 S&P500 companies every year

Post by crake »

Poorman wrote: Wed Apr 01, 2020 9:56 am
JoMoney wrote: Wed Apr 01, 2020 9:40 am I don't understand why you would want to hold such a portfolio, perhaps if you had some sort of hypothesis about what that portfolio would uniquely do it could be looked at in some other way.
The hypothesis is let's see how it performs, then go from there.
I still do not understand the point. You have essentially chosen a random strategy and now want to back test it. It will either have under performed or over performed the S&P 500, so what?

Your test says nothing about the predictive power of your strategy or how it will perform going forward. I could just as easily come on Bogleheads and ask everyone to compute the return of the DOW on days they eat cereal for breakfast. The same potential outcomes exist. Cereal days will outperform non cereal days or vice versa. That doesn't mean that buying and selling stock based on your breakfast habits is a good idea.
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vineviz
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Re: Buying only top 10 S&P500 companies every year

Post by vineviz »

DonIce wrote: Wed Apr 01, 2020 10:28 am
vineviz wrote: Wed Apr 01, 2020 10:12 am "Dynamic allocation" is putting 10% into each of the ten largest stocks each 12/31 and holding for a year. Unfortunately I can't seem to link to a dynamic allocation in PortfolioVisualizer but I'll put the weights below.
Did you have to do that manually (i.e. research which stocks made up the top 10 each year and input that table for each year?) Or is there some way to do this kind of analysis automatically on PV?
I had the historical S&P components in a spreadsheet, and PortfolioVisualizer allows you to upload a spreadsheet with dates and allocations in their "Dynamic Allocation" backtest. https://www.portfoliovisualizer.com/bac ... allocation

Might be a paid feature, though, I'm not sure.
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Beliavsky
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Re: Buying only top 10 S&P500 companies every year

Post by Beliavsky »

Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
There are "megacap" funds that buy only the largest stocks by market cap. XLG (Invesco S&P 500 Top 50 ETF) has slightly outperformed VFINX (Vanguard S&P 500) in terms of both return and risk since inception (Jun 2005 - Mar 2020) according to Portfolio Visualizer.

Code: Select all

Ticker CAGR	Stdev   BestYr   WorstYr Drawdown Sharpe Sortino US Mkt Correlation
VFINX 7.34%	14.64%	32.18%	-37.02%	-50.97%	0.48	0.66	1.00
XLG   7.58%	13.86%	32.04%	-33.80%	-48.34%	0.51	0.73	0.97
Normchad
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Re: Buying only top 10 S&P500 companies every year

Post by Normchad »

For a while, the “dogs of the Dow” was popular in the press. The idea was similar, except each year you only bought the *worst performing* stocks from the DOW30 for the previous year. I think the idea was that these were good companies that had been unfairly punished. It was a recipe for “buying low and selling high”. So just about the opposite of what OP is looking at.

I don’t think this fad lasted too long. But they can’t both be bad ideas, right?
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Re: Buying only top 10 S&P500 companies every year

Post by BlueMoonXD »

I love that because this is Bogleheads, someone actually did the legwork for OP of creating a backtest which confirms the consensus in the thread, which is that indeed this strategy will sell high and buy low.
Normchad wrote: Wed Apr 01, 2020 1:16 pm For a while, the “dogs of the Dow” was popular in the press. The idea was similar, except each year you only bought the *worst performing* stocks from the DOW30 for the previous year. I think the idea was that these were good companies that had been unfairly punished. It was a recipe for “buying low and selling high”. So just about the opposite of what OP is looking at.

I don’t think this fad lasted too long. But they can’t both be bad ideas, right?
This is an interesting point, but I do think it's possible for both to be bad ideas. The top 10 is a pretty arbitrary cutoff, and so it makes sense that you can get into trouble buying and selling as things shift around this threshold.

But I also think only buying underperformers is going to be a bad strategy since presumably some of the time those stocks are falling due to legitimate loss of value. At least with the top 10 strategy, you continue to benefit if the top performers continue to overperform, whereas the "dogs" strategy is counting on the fake dogs to make up for the underperformance of the real dogs.
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Re: Buying only top 10 S&P500 companies every year

Post by David Jay »

Normchad wrote: Wed Apr 01, 2020 1:16 pm But they can’t both be bad ideas, right?
You're probably right. It's hard to imagine two bad investment strategies existing simultaneously in a single space/time continuum... :wink:
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Re: Buying only top 10 S&P500 companies every year

Post by LiveSimple »

Why not just buy the large cap growth or mega cap growth
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Re: Buying only top 10 S&P500 companies every year

Post by Normchad »

David Jay wrote: Wed Apr 01, 2020 2:24 pm
Normchad wrote: Wed Apr 01, 2020 1:16 pm But they can’t both be bad ideas, right?
You're probably right. It's hard to imagine two bad investment strategies existing simultaneously in a single space/time continuum... :wink:
I was being a little cheeky with that. I do think they’re both bad ideas, but they are sort of opposing as well, so I figure the opposite of a bad idea can’t be that bad, right. But apparently it can.
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Re: Buying only top 10 S&P500 companies every year

Post by rkhusky »

Clearly the best approach is to buy the stocks that will be the top performers next year and sell the ones that will be the worst performers.
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Re: Buying only top 10 S&P500 companies every year

Post by HomerJ »

Here's a funny tidbit...

When I first started investing in the mid 90s, as a novice investor, with no idea about index funds or Bogle, I bought the Dogs of the Dow book, and tried to use it.

It's a very good example of a model that back-tests well, then fails to perform going forward.

It backtested great from the 1920s to 1991 (when the book was written).

After that, during the 1990s, it underperformed, and I gave up on it. Maybe because people knew about it? Seems like an awful lot of patterns are discovered in the stock market via backtesting, but as soon as they are discovered, they stop working.

Looking at the wikipedia, it says this about the strategy.
The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins in 1991 and the official Dogs of the Dow website,[1] which proposes that an investor annually select for investment the ten Dow Jones Industrial Average (DJIA) stocks whose dividend is the highest fraction of their price. Under other analysis these stocks would be considered "dogs", or undesirable, but the Dogs of the Dow strategy proposes these same stocks have the potential for substantial increases in stock price plus relatively high dividend payouts.
O'Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well.

For example, for the twenty years from 1992 to 2011, the Dogs of the Dow matched the average annual total return of the DJIA (10.8 percent)
What's funny is that it says it "performed well", but all it did was match the entire DOW return. So I'm not sure that proves the strategy is useful.

During certain periods it under-performed, during other periods, it over-performed. Averaged out to basically the same as just investing in the DOW stocks.
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Re: Buying only top 10 S&P500 companies every year

Post by masonstone »

Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
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Re: Buying only top 10 S&P500 companies every year

Post by GoneOnTilt »

Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
Just buy the S&P and forget about it.

Consider trying something. I do this every day: Wikipedia has a list of all S&P 500 companies. Pick a random one each day and read about the company. The list has a link for every company to its individual Wikipedia page. I love reading about all the amazing companies I own. It's really awesome, what some of these companies do! I do this each morning. Doing this during the downturn has helped me buy into this declining market. And it's fun.

Good luck.
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Re: Buying only top 10 S&P500 companies every year

Post by geerhardusvos »

retiredjg wrote: Wed Apr 01, 2020 9:29 am The "right direction" is not to buy this much in individual stocks. Buy the market - either total stock or 500 index or something similar.
+1

OP—You’re likely not smarter than the market, and it’s more dynamic than your analysis. Do you want to make this your full-time job? Then sure become an active manager. But when the index keeps beating you... you may end up giving up. There are threads about holding 80-100 stocks and the performance pretty closely mimics an index, but then why not have the efficiency of the index?
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Re: Buying only top 10 S&P500 companies every year

Post by geerhardusvos »

masonstone wrote: Wed Apr 01, 2020 3:28 pm
Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
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Re: Buying only top 10 S&P500 companies every year

Post by averagedude »

I would say that this strategy has had outstanding returns since 2009. Who knows how this will perform over the next 10 years. Beware of backtesting and considering it to be gospel. This strategy will have sunny decades, and will have decades where the sky is nothing but clouds.
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Re: Buying only top 10 S&P500 companies every year

Post by camillus »

It would be a lot more useful to buy the companies that are going to be the top 10 holdings in the SP500.
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Re: Buying only top 10 S&P500 companies every year

Post by FlyerJack »

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Last edited by FlyerJack on Wed Jan 27, 2021 9:43 pm, edited 1 time in total.
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

vineviz wrote: Wed Apr 01, 2020 10:12 am
Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
This is pretty much the opposite of a successful strategy. Historically, you'd have been much better off building a portfolio that owned everything in the S&P 500 EXCEPT for the top 10 stocks.

I only went back to 2000 because some top 10 stocks prior to that have gone bankrupt and/or merged out of existence and PortfolioVisualizer can't handle that. But here's what it looks like.

Image

Image

"Dynamic allocation" is putting 10% into each of the ten largest stocks each 12/31 and holding for a year. Unfortunately I can't seem to link to a dynamic allocation in PortfolioVisualizer but I'll put the weights below.

Code: Select all

Start Date	Assets
Allocation history
12/01/2000	100.00% Cash (CASHX)
12/31/2000	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Cisco Systems, Inc. (CSCO)
10.00% Intel Corporation (INTC)
10.00% Pfizer, Inc. (PFE)
10.00% Merck & Company, Inc. (MRK)
10.00% American International Group, Inc. (AIG)
12/31/2001	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Intel Corporation (INTC)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% American International Group, Inc. (AIG)
12/31/2002	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Merck & Company, Inc. (MRK)
10.00% American International Group, Inc. (AIG)
12/31/2003	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Cisco Systems, Inc. (CSCO)
10.00% Intel Corporation (INTC)
10.00% Pfizer, Inc. (PFE)
10.00% American International Group, Inc. (AIG)
12/31/2004	10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Walmart Inc (WMT)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Bank of America Corporation (BAC)
10.00% American International Group, Inc. (AIG)
12/31/2005	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Altria Group (MO)
10.00% Procter & Gamble Company (PG)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Bank of America Corporation (BAC)
10.00% American International Group, Inc. (AIG)
12/31/2006	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Altria Group (MO)
10.00% Procter & Gamble Company (PG)
10.00% Citigroup Inc. (C)
10.00% Pfizer, Inc. (PFE)
10.00% Johnson & Johnson (JNJ)
10.00% Bank of America Corporation (BAC)
10.00% American International Group, Inc. (AIG)
12/31/2007	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Cisco Systems, Inc. (CSCO)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% Bank of America Corporation (BAC)
12/31/2008	10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Walmart Inc (WMT)
10.00% Pfizer, Inc. (PFE)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2009	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2010	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2011	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Pfizer, Inc. (PFE)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
12/31/2012	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% International Business Machines Corporation (IBM)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Alphabet Inc. (GOOGL)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
12/31/2013	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Alphabet Inc. (GOOGL)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Wells Fargo & Company (WFC)
12/31/2014	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Procter & Gamble Company (PG)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Chevron Corporation (CVX)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Wells Fargo & Company (WFC)
12/31/2015	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Wells Fargo & Company (WFC)
12/31/2016	10.00% Apple Inc. (AAPL)
10.00% General Electric Company (GE)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% AT&T Inc. (T)
10.00% J P Morgan Chase & Co (JPM)
12/31/2017	10.00% Apple Inc. (AAPL)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Alphabet Inc. (GOOGL)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Alphabet Inc. (GOOG)
12/31/2018	10.00% Apple Inc. (AAPL)
10.00% Microsoft Corporation (MSFT)
10.00% Exxon Mobil Corporation (XOM)
10.00% Amazon.com, Inc. (AMZN)
10.00% Alphabet Inc. (GOOGL)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Alphabet Inc. (GOOG)
12/31/2019	10.00% Apple Inc. (AAPL)
10.00% Microsoft Corporation (MSFT)
10.00% Amazon.com, Inc. (AMZN)
10.00% Alphabet Inc. (GOOGL)
10.00% Berkshire Hathaway Inc. (BRK.B)
10.00% Facebook, Inc. (FB)
10.00% Johnson & Johnson (JNJ)
10.00% J P Morgan Chase & Co (JPM)
10.00% Alphabet Inc. (GOOG)
10.00% Visa Inc. (V)
Nice! I was curious how it would do going back to like the '70's but I'm assuming it would be a similar outcome. I should have just ran it back to 2000's and called it a day.
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

geerhardusvos wrote: Wed Apr 01, 2020 5:07 pm
retiredjg wrote: Wed Apr 01, 2020 9:29 am The "right direction" is not to buy this much in individual stocks. Buy the market - either total stock or 500 index or something similar.
+1

OP—You’re likely not smarter than the market, and it’s more dynamic than your analysis. Do you want to make this your full-time job? Then sure become an active manager. But when the index keeps beating you... you may end up giving up. There are threads about holding 80-100 stocks and the performance pretty closely mimics an index, but then why not have the efficiency of the index?
I never said I was going to be an active manager or a make it a full time job. It was just a simple question.
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Re: Buying only top 10 S&P500 companies every year

Post by Poorman »

bck63 wrote: Wed Apr 01, 2020 4:07 pm
Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
Just buy the S&P and forget about it.

Consider trying something. I do this every day: Wikipedia has a list of all S&P 500 companies. Pick a random one each day and read about the company. The list has a link for every company to its individual Wikipedia page. I love reading about all the amazing companies I own. It's really awesome, what some of these companies do! I do this each morning. Doing this during the downturn has helped me buy into this declining market. And it's fun.

Good luck.
I'm actually 100% VTSAX
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Re: Buying only top 10 S&P500 companies every year

Post by GoneOnTilt »

Poorman wrote: Wed Apr 01, 2020 5:55 pm
bck63 wrote: Wed Apr 01, 2020 4:07 pm
Poorman wrote: Wed Apr 01, 2020 9:26 am The S&P 500 changes holdings quarterly, March, June, September, December. Let's go with December.

What if... you bought 10% each of the top 10 holdings of the S&P 500 every December, sold whatever fell from the top 10 list. What would the performance be? I started looking into this but don't have access to the tools to get this done. It would also take some time to figure out...

Curious on the earnings, largest drop, best gains, etc. Does anyone have the time or resources? Or point me in the right direction.
Just buy the S&P and forget about it.

Consider trying something. I do this every day: Wikipedia has a list of all S&P 500 companies. Pick a random one each day and read about the company. The list has a link for every company to its individual Wikipedia page. I love reading about all the amazing companies I own. It's really awesome, what some of these companies do! I do this each morning. Doing this during the downturn has helped me buy into this declining market. And it's fun.

Good luck.
I'm actually 100% VTSAX
The suggestion above still stands. And, just keep VTSAX and forget about it. Good luck.
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Re: Buying only top 10 S&P500 companies every year

Post by geerhardusvos »

Poorman wrote: Wed Apr 01, 2020 5:55 pm
geerhardusvos wrote: Wed Apr 01, 2020 5:07 pm
retiredjg wrote: Wed Apr 01, 2020 9:29 am The "right direction" is not to buy this much in individual stocks. Buy the market - either total stock or 500 index or something similar.
+1

OP—You’re likely not smarter than the market, and it’s more dynamic than your analysis. Do you want to make this your full-time job? Then sure become an active manager. But when the index keeps beating you... you may end up giving up. There are threads about holding 80-100 stocks and the performance pretty closely mimics an index, but then why not have the efficiency of the index?
I never said I was going to be an active manager or a make it a full time job. It was just a simple question.
Well it’s going to be a full-time job and you will be an active manager if you do this. What kind of responses did you expect to get on Bogleheads? Our responses are simple to your simple question
VTSAX and chill
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Re: Buying only top 10 S&P500 companies every year

Post by Triple digit golfer »

This sounds like a reverse Dogs of the Dow strategy.

Staying on the animal theme, I hereby declare this strategy the "Cat Food in my Future" strategy.
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Re: Buying only top 10 S&P500 companies every year

Post by Slowtraveler »

You'd outperform when megacaps outperformed and underperform when they don't. Top 100 in equal weight without selling or rebalancing would be much more diversified, likely have higher returns, and was approved by Bogle in some of his writings (Common Sense on Mutual Funds).
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vineviz
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Re: Buying only top 10 S&P500 companies every year

Post by vineviz »

Slowtraveler wrote: Wed Apr 01, 2020 8:33 pm You'd outperform when megacaps outperformed and underperform when they don't. Top 100 in equal weight without selling or rebalancing would be much more diversified, likely have higher returns, and was approved by Bogle in some of his writings (Common Sense on Mutual Funds).
Maybe, but the bottom 100 equal weighted would likely be even better: the bigger the company, the lower the expected returns.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Buying only top 10 S&P500 companies every year

Post by nigel_ht »

MotoTrojan wrote: Wed Apr 01, 2020 10:09 am
Poorman wrote: Wed Apr 01, 2020 10:04 am
Brianmcg321 wrote: Wed Apr 01, 2020 9:59 am So you’d buy high then sell low.

That should work.
Useless comment. Thanks
How so? By definition you are saying that you are selling the companies that have underperformed as they have not kept up with the companies remaining in the top 10 or the ones that take it over, and then you are buying companies that have outperformed some of the top 10 in order to get in. You are literally by design buying high and selling low.

I invest in the opposite way, with a good chunk of my US Large Cap allocation in fundamental indexes which sell what has outperformed and buy what has underperformed each quarter. Good luck.
It’s probably a pretty static list except maybe #10.

No, “by definition” it doesn’t have to mean buy low, sell high in as much as #10 moving to #12 doesn’t indicate that its stock price has dropped below what you purchased at.

He’s also doing the same general thing as your index by rebalancing every quarter back to 10% so he’s selling the outperformers on the top 10 list to rebalance into the ones not performing as well.

Doesn’t mean that just doing a DJI index isn’t simpler and better.
Last edited by nigel_ht on Thu Apr 02, 2020 6:59 am, edited 1 time in total.
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