I’ve always been interested in business and the stock market. Like many people I’m aware that almost no one can beat the market reliably. So I have almost exclusively invested using index funds and roboadvisors with the only exception being equity I receive from a company where I work. Although even that I tend to sell and move to index funds eventually.

Even though I know the odds, I still like to think I can beat the market (don’t we all). There’s some niche areas in the market where I feel particularly plugged in that I wanted to try. But I also know that we tend to remember our wins and forget our losses, so I wanted to try this and record and compare the data.

Now seemed a good time as the amount of money in passive investing is surpassing the amount in active investing in the US. Active investing was hard to get right because there were so many variables and you had so much competition. As more capital flows into passive investing, active investing should become easier. That being said, easier is relative and it’ll still be really hard.

I’m going to test my almost-definitely-wrong “I can beat the market” theory using “paper trading” on Webull, which is basically just normal investing but with fake money. I’ve started out with $1 million and will be tracking how my portfolio does compared to the market over time, and sharing my progress if I do well. I’ll probably share if I do poorly too, but definitely will if I do well.

I’m going to invest based on some general principles, and my specific investments will be based on my market theses. One of my overarching themes in investing uses the well-known gold rush metaphor of rather than investing in gold, invest in packs and shelves. I would also add to that list Levi jeans. When the gold rush subsided the market for picks and shovels diminished, but Levi had taken that opportunity and converted it to a new, independent market.

This post and updates are in no way investing advice, just a fun experiment. (I mean, unless I beat the market by a huge margin, in which case this is absolutely investing advice and you should pay me for more of it.)

General Principles

  • Don’t invest in something you don’t understand
  • Unregulated monopolies are almost always good bets
  • Use more blue chip-type companies to balance volatility
  • Better to have an ok bet in a great market than vice versa

Allocations

  • 25% in “Tent Stocks”
    • Fortune 500 companies
    • Longer history of surviving various market conditions
    • Lose rule of thumb is $15B valuation or higher
  • 50% in “Solid Bets”
    • Younger/smaller companies but still established
    • Strong customer base
    • Good reputation
    • History of good product/market decisions
    • Lose rule of thumb is $3-15B valuation
  • 25% in “Asymmetric Upside”
    • Companies that have good product/reputation but not a lengthy history
    • Companies in an emerging space where they will likely be successful but depends on the emerging space
    • Lose rule of thumb is $0-3B valuation

I’m going to prioritize investing in market segments where I feel most knowledgeable. This includes technology infrastructure, fintech, medtech, media, social media, ecommerce, and elearning. Of those I am most intimately familiar with infrastructure tech, fintech, and media.

I will operate by creating investing theses and investing in companies that fit one or more of them.

Infrastructure Tech

  • Investments in the Information Security sector will continue to rise significantly as the US government continues to fund and encourage more secure infrastructure
  • In particular the government will encourage Zero Trust implementations. Zero Trust providers that are FedRAMP certified will do well selling to government agencies *Companies that have a “good” zero trust implementation and good onboarding will do well selling to large companies that operate pieces of US infrastructure (public or private)
  • Companies that enable customers to meet compliance requirements will do well as requirement complexity increases. Particularly with companies below the “security poverty line”
  • “Pareto Principle” security companies, ones that get you 80% of the way to strong securtire for a fraction of the cost of those more sophisticated companies will do well
  • Cloud-first endpoint and connection management companies will do well

Fintech

  • Companies that enable p2p payments will be successful
  • Strong payment networks that avoid the Mastercard/Visa duopoly will groped stronger
  • Bank “overlay” networks will be a growing successful architecture (modern applications that abstract away traditional banks as only a way to store funds, e.g. CreditKarma)
  • Fintech apps that have a good UX and gamification will do well
  • Institutions connecting users and accounts but letting the user control the data will enable innovation and do well

Medtech

  • Anything that enables more predictable choices that the customers can be confident in will do well, whether it’s the care itself, communications platforms, or the billing
  • Accessible inaccessible enablement tech will do well

Media

  • Content will continue to fragment among providers. Success will be at the intersection of good content and good hardware/software experiences.
  • Hardware/software integration will give an edge. Media companies with their own apps, and particularly their own hardware will excel, if the user experience is good.
  • Traditional content (e.g. big budget TV/Movies) will centralize on the fragmented but successful platforms
  • Modern content creators will explore platforms that enable creator brand control
  • For content creators there will be decentralization of content, but a centralization of monetization
  • Creator tools that enable easy content repurposing (e.g. long form YouTube into TikToks) wl do well

Social Media

  • The more the company enables content creators to build their own brands the more talent it will attract

Ecommerce

  • Enabling sellers to own their own data and control their brand will be powerful

Elearning

  • Platforms that enable education that’s north affordable and tired directly to job prospects will do well

Based on these theses, to start my portfolio will be these investments

Tent Stocks

  • Amazon
  • Google
  • Apple
  • Microsoft
  • Crowdstrike
  • Disney
  • Spotify
  • Warner Bros.
  • Netflix
  • Block (formerly Square)
  • BestBuy

Solid Bets

  • Cloudflare
  • Zscaler
  • SentinelOne
  • Okta
  • Roku
  • Sonos
  • Shopify

Asymmetric Upside

  • Curiosity Stream
  • Udemy
  • Coursera
  • OneMedical
  • Teladoc
  • Amwell
  • Hims & Hers Health