Investing with Artificial Intelligence may unlock consistent outperformance, challenging even the S&P 500’s returns. Featured Forbes article.


Copyright: – “AI And Investing”


Neither Google, nor Microsoft, Amazon, or Tesla – none of them beat the S&P 500 each of the last 3 years. Individual stocks just have a hard time consistently beating the market (not to take away from these venerable high flyers – each has, of course, outperformed with incredible long-term returns. Consistent outperformance is different).

Can a machine or AI be used to beat the S&P 500 consistently?

Ask any serious investor or portfolio manager, and they’ll tell you it isn’t easy to beat the S&P 500 – and few, if any, have been able to do it year after year.

What about the last 3 years – through a multi-regime market? The last 3 years were like few others in market history and included pandemic stimulus and 0% rates war, now two sky-high inflation, and then a Fed rate-hike cycle with rates now close to 5%.

Fact. Well, the Trefis high-quality portfolio (HQ) was a humble start – no frills, first money invested in the middle of a raging pandemic in September 2020. It has produced more than 1,000 basis points of outperformance* over the last 3 years. HQ has beaten the S&P 500 each year – 2020 partial year, 2021, 2022, and 2023 year-to-date. If you know many funds – in fact, any fund – that achieved this, please do send them along to us, we’re always keen to learn and improve!

Below, we share more in 3 areas: Why HQ worked? What’s been our broader learning, specifics of our approach, our journey? What’s next?

So – why did HQ work? Start with the basics

We started with a simple belief. A belief that a stock’s attributes like defensible revenue growth, profitability, balance sheet discipline, and reasonable valuation – just don’t get old. Curious money managers often wonder if there’s more to it – and of course, there is. However, following even these consistently was hard for us. The temptation to buy more growth in Zoom and Peloton stock at a higher price, or while turning a blind eye to the balance sheet in another value stock was irresistible. We stuck to a systematic, data-driven process.[…]

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