· SXR8
Why I only invest in the few winners
Most stock market gains come from a handful of companies, often in markets with only two or three players. This is how I build a portfolio around that, with the S&P 500 as referee.
I started investing in November 2026. The first question I asked myself was simple: why not just buy the whole market? The honest answer is that for most people, that is the best choice. That is why half of my money goes straight into the S&P 500.
With the other half I try something different. And I show every month whether it works.
The stock market has few winners
Professor Hendrik Bessembinder calculated that about 4% of all US stocks since 1926 produced all of the stock market's net wealth creation. The rest, taken together, did no better than Treasury bills. An index works because you own that 4% automatically. If you pick stocks yourself, you have to find them.
Many markets have few winners too
Where is that 4%? Often in markets that only have room for a few players.
Almost every card payment runs through two companies. Almost every bond is rated by two companies. Every machine for the most advanced chips comes from one company.
Companies like these have what economists call pricing power. They can raise prices without losing customers, because there is no real alternative. It shows in their numbers: Visa keeps almost half of its revenue as free cash flow, and ASML earns returns on capital that most companies never reach.
My split
- 50% S&P 500 through SXR8, the iShares ETF that reinvests dividends.
- 40% few winners: monopolies, duopolies and oligopolies with high margins, high return on capital and growing revenue.
- 10% future winners: smaller, profitable growers that could become tomorrow's giants.
The rule that keeps me honest
A great company is not always a great investment. Overpay, and even a top business gives a mediocre return. So I buy in two steps:
- Quality: does the company dominate its market, with high margins, plenty of cash flow and growing revenue? If not, it is out.
- Price: is the price-to-earnings ratio at least 15% below the company's own 5-year average? Then it is in the buy zone.
If nothing is in the buy zone, I buy the S&P 500. The index wins whenever I see no opportunity.
One caveat: the 5-year average includes 2021, when stocks were unusually expensive. That is why a striking number of quality companies sit in the buy zone right now. So I always look at why a stock is cheap. Novo Nordisk is cheap because Eli Lilly is taking market share and US prices are falling. That is not a bargain; that is a problem.
Why in public?
Because it is easy to show only your winners. I do the opposite: every month the score against the S&P 500, including when I am behind. After a few years, you and I will know whether this approach beats simply buying the index.
Right now I only own SXR8. The first purchase outside the index follows once a company on my shortlist is in the buy zone and I have finished the research. Every week there will be an article here about one company.