I only invest in large caps, ones everyone knows, based on two criteria:

1) They are are fairly or somewhat undervalued given the conventional market view and metrics.

2) They are likely to be significant beneficiaries of large-scale technological trends that the market is oblivious to and has not priced into the stock.

Then I wait a few years for the trend to become more obvious and for the market to adjust the stock price accordingly for the new upside. My portfolio is essentially a ladder of different technology trends that take 3-4 years to mature. Occasionally one does not pan out but, while I may not make much money, I never lose much money because "good large-cap tech stock".

The only "small caps" I invest in are tech startups. But that is a different portfolio than what I am talking about here.

Since I spend my days thinking about trends in technology anyway, this whole exercise takes little additional effort. I might add or remove something from that list of stocks once a year. When I save money from my paycheck, I semi-randomly put it in a stock on that list so no thinking required.

Yes, I could do some kind of sophisticated portfolio analysis but that would defeat the goal of spending as little time on it as possible. I only check against the S&P 500 as a sanity check. My lifetime annualized return (decades) is about +2 over the S&P 500 but the last five years has been more like +4, so I can't complain. The annual return relative to the S&P 500 has actually been surprisingly steady over time, so no undue volatility.

So, you're investing only in large cap stocks, while spending as little time as possible doing analysis, and over decades have consistently surpassed the S&P returns, with low risk and low volatility?

Forgive me if I don't believe this in the least.

The tech sector is the third strongest sector (of 11 sectors) over the past five years: http://news.morningstar.com/stockReturns/CapWtdSectorReturns...

So what he's describing, beating the S&P 500 by a bit over that period, isn't implausible. Comparing his portfolio's performance to the S&P 500 is an obvious mistake and, more importantly, attributing his portfolio's performance to anything other than luck (good or bad) is very silly.

I didn't pull apart his post as much as I might (it's indicative of a whole range of bad ideas people have with regard to investing, like his ideas regarding sector-specific investing) but the notion that really needs to be attacked is that beating the S&P 500 or total market index can be regarded as indicative of some special ability without taking into account the portfolio's risk.

A lot of the investing orthodoxy is predicated on the average investor being non-observant and ignorant of almost everything important going on in the economy. I think this is both incorrect and a bit snobbish at least some of the time; many average people have sophisticated views of their line of business even if they are not sophisticated investors per se, and their domain knowledge is improperly discounted due to their lack of sophistication as investors.

I am not suggesting high-risk, short-term strategies but long-term, buy-and-hold strategies that leverage the native knowledge and intelligence of Silicon Valley engineers. I also do high-risk, short-term strategies (options and similar) based on the same domain expertise, and have done alright with those too, but I never recommend that to people.

It would be seriously odd if some random guy on Wall Street understood Silicon Valley and tech better than I do. The technology industry is not driven over the long-term by financial numbers on a spreadsheet. I've been through many tech boom-bust cycles in Silicon Valley and understand the dynamics pretty well. No special magic to this portfolio, and it has been one of the most consistent producers for me. As long as you are not betting the farm on a single company, it is difficult for this to go wrong. At least in tech, I can see the bad things telegraphed long before they materialize in the market because I understand the fundamentals. Even if Wall Street isn't paying attention.

For the poster below, my returns are consistently worse than every hedge fund that has ever wanted to hire me. I'd be a terrible hedge fund manager; I am personally more interested in return on effort than maximum possible returns. (They wanted to hire me for my theoretical skills, not my investing skills.)

>So what he's describing, beating the S&P 500 by a bit over that period, isn't implausible.

Certainly not. I suppose I take issue with having been able to do so for "decades", via only large-cap stocks.

That's implausible, to me at least. That would be all-time-great hedge fund manager type results.

There could be a thousand people on hn who follow the same strategy, it's not that unlikely that it works for one of them and having it work for him makes it more likely that he writes about it.