market cap / backtesting / portfolio strategy
Buying the Five Largest Companies: A Market-Cap Strategy Backtest
Buy the five largest US companies by market cap, 20% in each. Every two weeks, re-sort the list and reset all five back to 20%: trim whatever ran up, add to whatever drifted down, and swap out anything that fell out of the top five. One rule, and nothing to tune.
In the January 2020 to August 2026 backtest, the strategy turned $100,000 into $415,000, against $246,000 for the S&P 500. Dividends are counted on both sides and trading costs are charged at a tenth of a percent per order, which is a fair approximation for stocks this liquid. Taxes are not modelled at all, and resetting five positions every two weeks in a taxable account generates short-term gains.
The costs are real too. The worst drawdown was 44.9%, about eleven points deeper than the index, and you are holding five companies instead of five hundred. Open the linked portfolio to read the rules and run the backtest yourself. Performance figures reflect the recording, not current returns.
Transcript
0:00The simplest trading strategy I have ever tested beat the market by a hundred and sixty nine percentage points.
0:06Take every public company in America and line them up by market cap.
0:09Buy the top five, with twenty percent of your cash in each one.
0:12Every two weeks you sort the whole list again, and then you reset all five back to twenty percent.
0:17If Apple drifted down to eighteen you buy more Apple, and if Nvidia ran up to twenty four you sell some Nvidia.
0:23Anything that fell out of the top five gets replaced by whatever took its place.
0:27From January 2020 to August 2026, a hundred thousand dollars became four hundred and fifteen thousand.
0:34The S&P turned that same hundred thousand into two hundred and forty six.
0:39Here is exactly what is inside that.
0:41Dividends are counted on both sides, so the comparison is fair.
0:45Trading costs are charged on every buy and every sell at a flat tenth of a percent, and for liquid, high volume stocks like these that is a fair approximation.
0:53Taxes are not in there at all, and resetting five positions every two weeks in a taxable account will generate short term gains, unless you trade in a tax-advantaged account like a Roth IRA.
1:04I can explain the whole thing in one sentence, so I always know why it holds what it holds, and it has no settings for me to overfit.
1:11You can understand it well if you only understand the basics of trading.
1:15But with all strategies, there are downsides.
1:17For one, it fell 44.9% at its worst, which is eleven points deeper than the index.
1:22But the index only returned half as much.
1:25You are also holding five companies instead of five hundred, although those five are the largest in America.
1:31Every number here came from a backtest you can open and run yourself.
1:35The portfolio is in my bio, ready to be copied with the click of a button.
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