How We Build a Market-Beating Portfolio at The Predictive Investor
Build a market-beating portfolio with a rules-based strategy focused on DCA, indexing, earnings momentum, and disciplined investing.
Welcome to The Predictive Investor. If you’ve just joined us, you’re in the right place.
This post is your roadmap. A full breakdown of how we approach long-term investing with structure, discipline, and the goal of beating the market over time. It’s not about predictions. It’s not about hot takes. It’s about following a clear set of principles backed by data and designed to remove emotion from the equation.
Our strategy is built on five core pillars. Each one is simple to understand and powerful when consistently applied. Below, we’ll walk through each step and share ideas on how to implement them in your own portfolio.
One important note before we start: the ideas I’ve outlined here are based on what’s worked for me and what I’ve seen work for others, but should not be considered personalized financial advice. Each reader has their own unique situation, risk tolerance and objectives and I always recommend readers seek out the guidance of a qualified financial advisor before making investment decisions. Remember, it’s your money and your responsibility.
Let’s dive in.
1. Automate Wealth Building with Dollar Cost Averaging
The most powerful investing habit? Consistency.
Dollar cost averaging (DCA) means investing a fixed amount of money into your portfolio at regular intervals, regardless of whether the market is up, down, or flat. It’s the most reliable way to build long-term wealth without trying to time the market.
When you automate your investing, you remove two of the biggest dangers: hesitation and emotional decision-making. DCA takes advantage of market dips (you buy more shares when prices are low) and avoids lump-sum mistakes (buying everything at the top).
How to implement it:
Choose a fixed amount you can consistently invest. For example, $500 every two weeks or $1,000/month.
Set up automatic transfers into your brokerage account from your bank.
Then, create a recurring investment into your portfolio (whether it’s index funds, ETFs, or a blend including active positions).
Most brokerages allow you to automate this with just a few clicks.
Stick to it, especially during volatile markets when consistency is most important.
2. Take an Index+ Approach to Portfolio Construction
Start with a strong foundation. Then, aim to beat it.
We recommend building your portfolio using a two-tiered structure: the majority (usually 70–80%) in low-cost index funds that provide broad market exposure, and the remaining portion in actively selected investments designed to outperform the market.
Index funds give you the market’s return at minimal cost, and they outperform the majority of active funds over time. But to beat the market, you need to invest outside of it. That’s where the “+” comes in. By carving out a portion of your portfolio for active investing, you can capture long-term alpha while keeping your core stable and diversified.
How to implement it:
Determine your risk tolerance. Conservative investors might allocate 80–90% to index funds, while aggressive investors might lean closer to 70%.
For the indexed portion, build a diversified mix using low-cost ETFs or mutual funds. Consider these five core asset classes:
Stocks: Total market or S&P 500 index (e.g., VTI, SPY)
Bonds: U.S. aggregate bond index (e.g., BND, AGG)
Cash equivalents: Money market funds or high-yield savings
Gold: ETFs like GLD or IAU
Real Estate: REIT index funds like VNQ
Portfolio Visualizer has a fantastic asset allocation tool to help you understand the risk/return tradeoffs for the various asset classes.
For the “+” portion (10–30% of your portfolio), select active positions using a strategy like ours, a factor-based stock selection system with a focus on earnings momentum (see step 3).
Rebalance once a year or at certain thresholds to control risk. For example, I try to keep 70% of my portfolio indexed, with 30% allocated to individual stocks. When the individual stock portion grows to 50% of my total portfolio, I rebalance back to a 70/30 split. This allows me to harvest profits in a disciplined way.
3. Invest the “+” Using a Rules-Based, Factor-Driven Strategy
Alpha comes from process, not timing the market.
To beat the market consistently, you need a structured approach rooted in what actually drives long-term stock performance. That’s where factor investing comes in.
Think of factors as predictive characteristics, or measurable traits that have been shown to outperform over time.
At The Predictive Investor, our primary focus is earnings momentum, and the chart below helps explain why:
As you can see, the S&P 500’s price has closely tracked the trajectory of corporate earnings for nearly 80 years. Stock prices don’t move randomly. Over time, they follow earnings. When earnings rise, prices tend to follow. When earnings fall, the market eventually reflects that too. This correlation is why companies growing earnings faster than the overall market are statistically more likely to outperform it.
So our strategy zeroes in on stocks with accelerating earnings. Companies that are growing profits consistently, surprising to the upside, and gaining investor confidence. Earnings growth tends to persist longer than headline-driven momentum, which makes it one of the most durable and reliable edges an investor can follow.
Here’s how to implement a rules-based strategy, whether you follow ours or design your own:
Pick a strategy you can stick with.
The most important part of a rules-based approach is consistency. If our focus on earnings momentum isn’t for you, that’s fine. Choose a strategy you believe in and are willing to follow through different market cycles.Prioritize a factor-based strategy backed by evidence.
Look for strategies that target some combination of factors with a history of outperformance, such as:Value – buying stocks trading below intrinsic value
Growth – targeting companies with strong revenue or earnings expansion
Quality – focusing on profitability, low debt, and return on equity
Momentum – investing in stocks with strong recent performance
Set up a stock screener.
Use tools like Finviz, Koyfin, or Portfolio123 to screen for stocks that meet your chosen criteria. Save your screen and run it regularly to keep your candidate list fresh.Track results monthly, and build gradually.
Don’t rush to buy every qualifying stock at once. Instead, add new positions every month or every few months. Factor strategies outperform over time, not all at once, so patience and steady implementation are key.Follow a clear buy/sell process.
Define your entry and exit rules ahead of time. This helps remove emotion from the decision-making process and ensures your approach stays consistent
4. Tune Out the Noise and Stick to the Plan
The media profits from your panic. You profit from discipline.
In investing, “noise” is anything that sounds important but doesn’t improve your outcomes. Think daily headlines, economic predictions, political drama, and market punditry. These distractions can lead you to make decisions that hurt your long-term returns.
The biggest enemy of a successful investor isn’t market volatility, it’s emotional volatility. Jumping in and out of positions, second-guessing your plan, or reacting to news cycles usually results in lower returns. Staying disciplined is key to compounding wealth.
How to implement it:
Unsubscribe from sensationalist financial media or Twitter/X doomscrolling.
Limit how often you check your portfolio (e.g., weekly, not daily).
Focus on process, not outcomes. Did you follow your rules? That’s what matters.
When markets get noisy, revisit your investment plan, not the headlines.
Subscribe to trusted sources (like The Predictive Investor) that focus on signal over noise. Our weekly market update filters out the noise and keeps you grounded in data, not drama.
5. Handle Market Corrections with a Pre-Planned Cash Deployment Strategy
Corrections aren’t a bug, they’re a feature.
Rather than fearing market downturns, we prepare for them by having a specific plan for what to do when they happen. We treat drawdowns as buying opportunities and deploy cash in stages based on the depth of the correction.
This removes emotion from one of the most psychologically challenging aspects of investing. By deciding ahead of time how you’ll act during a drawdown, you avoid panic selling and position yourself to buy quality assets at lower prices, the key to compounding wealth.
How to implement it:
The indexed portion of your portfolio should have an allocation to cash (5–15% is typical, depending on your risk tolerance).
Create a drawdown deployment plan like this:
5% drop in the S&P 500 → invest 10% of your cash
10–20% drop → invest 20%
20–25% drop → invest another 20%
25–30% drop → invest another 20%
30%+ drop → invest final 30%
These thresholds can be tracked using basic index levels (e.g., set alerts for SPY or S&P 500 milestones).
Stick to the plan, even if it “feels” like it’s not the right time. The market has historically recovered from every major drawdown, and those who bought during the lows built generational wealth.
Final Thoughts: The Power of a Predictable Strategy
The Predictive Investor strategy is built on a simple truth:
You don’t need to time the market to beat it. You just need a repeatable process, and the discipline to stick with it.
Let’s recap the five core pillars of our strategy:
Dollar cost average to build wealth automatically.
Take an Index+ approach to use indexing as a stable foundation, and allocate a portion to higher-return opportunities.
Use a rules-based strategy to invest in individual stocks that are statistically more likely to outperform the market over time.
Ignore the noise and stay focused on long-term, process-driven decisions.
Handle drawdowns with a plan to deploy cash strategically when others are panicking.
This framework is simple, but it’s not easy. The hardest part of investing isn’t understanding what to do. It’s doing it consistently, especially when markets are volatile, headlines are scary, or it feels like nothing is working.
That’s where The Predictive Investor comes in. We’re here to help you stay on track, with a steady flow of market updates, stock ideas, and reminders of the bigger picture. We cut through the noise so you can stay focused on the process that builds wealth over time.
If you're ready to escape the chaos and invest with clarity, you’re in the right place. Let’s build something powerful — one decision at a time.