In the ever-volatile stock market, keeping things simple works surprisingly well, according to Bespoke Investment Group. The research firm sought to create a straightforward formula to create a portfolio that stands the test of time and yields outperformance. “Keep it simple, stupid” — sometimes abbreviated as KISS — is a design principle first noted by the U.S. Navy in 1960. Bespoke used Russell 1000 as its stock universe and came up with three criteria: positive price momentum, rising margins and having a moat, or a competitive edge that makes the business somewhat immune to competition. “We wanted to come up with a very simple set of criteria,” said Paul Hickey, Bespoke Investment Group co-founder. The firm selects stocks with upward price momentum over the prior six months, one year and three years. Then it screens the list of stocks with net income margins that had risen over both of the last two years. Lastly, it applies qualitative judgement on whether an individual business has a moat. The portfolio of 20 stocks gained 13.6% over the last three months, compared to the Russell 1000’s 8.8% over the same time. The basket also has outperformed the benchmark over the nine-month period since its inception, Bespoke said. Megacap names Nvidia and Meta Platforms can be found on the list. Chipmaker Nvidia has become one of the biggest winners in the artificial intelligence boom, with shares skyrocketing another 193% this year. Meta is also a big advancer in 2024, up more than 70%. Credit card company Visa and tobacco firm Altria Group are also in the portfolio. Clinical genetic testing company Natera is also liked by Bespoke. Notably, billionaire investor Stanley Druckenmiller made the health care name his biggest position last quarter. The stock, which could benefit from deregulation, has been rallying since the reelection of Donald Trump.
Bespoke’s ‘keep it simple, stupid’ portfolio has been beating the market. Here’s the secret sauce