Investors of all levels of sophistication look to various measures to validate the success of their stock market investments. Perhaps the measure that is most often cited is the S&P 500 (Ticker SPX). Whether or not there is a mandate in your investment policy, isn't there an underlying desire to have your equity portfolio consistenly out-perform the S&P 500?
Academic research suggests that, throughout history, few investment managers have provided a consistent superiority of performance above that of the S&P 500. It is one thing to equal or slightly under-perform the S&P in a rising market, but what if your stock market investment strategy is tied to the S&P and the total performance of the index is 0% for 10 to 15 years - or longer?
The Premise: The S&P 500, and the stock market as a whole, is comprised of stocks in various industry groups. If you had an objective, predictive discipline to simply eliminate the under-performing industry groups that act as a drag on the index performance, you would have a higher probability of out-performing the S&P 500.
The Expanded Premise: If you focus your equity investment on just a top tier of industry groups, you would realize consistent, superior performance to the S&P 500.