Can You Beat the Market Without ANY Tech Stocks?

Just because the market seems expensive at the moment doesn't mean we should panic and go to cash, nor does it mean ignoring the risks that are staring us right in the face, whether it's tech valuations, the debt bubble in AI, and disruption that's already claimed the fate of billion-dollar companies in software. So here's the challenge. In the next however many minutes, I'm going to put my skills to the test and as a former professional trader, see whether I can build a portfolio that beats the S&P without owning any of the risky AI stuff that is probably getting in the way of you being invested and growing your portfolio in the long run. So there are 3 things to consider here. The first being valuations. You've probably seen charts like this looking at the overall price-to-earnings or maybe price-to-sales ratio of things like the S&P and how this has been driven by ever more expensive multiples within tech stocks. And you can see here this insane web of money that's been shuffled between all of the companies in the AI space between the likes of Nvidia, OpenAI, between Google and Anthropic and all of these companies that are essentially just playing pass the parcel. And it's this weird perverse thing where Nvidia, Google, and so on are then able to continue scaling and growing their revenues with their own money, just via a customer that they've acquired to purchase their own stuff. So the final one is also considering disruption, the effect that AI is having elsewhere in the economy. And you can see this showing up in places like software, for example. So in March of this year, the market cap of software companies tracked by this ETF fell by around $1 trillion in just 30 days. And that was because all of a sudden the market woke up to the realization that all these LLMs and AI technologies that can code could suddenly replace these platform businesses. And one example of this that I like to bring up is the maker of the accounting software QuickBooks, and they just haven't recovered. And this was a company that for years and years and years, as you can see, was one of the greatest compounders that was loved. It was adored in the city. So this shows you just how complicated the market is at the moment between AI valuations and disruption. So you might think about avoiding the Nasdaq and perhaps rotating into a sector or global ETF for diversification away from tech. But this is one of the biggest myths, I think, on the internet, and it could see you with more of your portfolio in precisely the names that you want to avoid here, not less. So let me show you how ETFs might be riskier than you think before taking on the challenge of building that portfolio to avoid it. So if we pull up the holdings of the S&P 500 ETF, the SPY in this case, you can see the likes of Nvidia, Apple, Microsoft, all of the big tech names occupying the top 10, and the concentration of the overall index, and therefore the ETF and your investment if you're buying this, is weighted something like 40% to just these 10 companies. And scrolling down, you can see that tech makes up 37.5% of the overall investment also, so it's super concentrated in big tech. So the idea that a lot of people have is, right, I'll go to the MSCI World, the global index for diversification, but because this is cap-weighted, in other words market capitalization, the bigger companies get the bigger share in the index, it means that they're getting a bigger share of your investment too. So it's still weighted towards the biggest companies in the world in this case, and you guessed it, They're the same ones that are the biggest in America and the biggest in the S&P 500. So this idea of diversification, switching between US and maybe a global ETF, is an illusion, guys. And because so many of the popular ETFs are cap-weighted, it's all the same problem, which is why we can't rely on them to bail us out here. So if you want to avoid the risky stuff and avoid tech and the debt bubble, the valuations, all this crazy shit that's going on at the moment, We're going to have to build our own portfolio. Okay, so this is a stock screener that ranks the companies across the world according to 7 of the most important metrics that I found to drive performance back when I was doing this professionally. There'll be a link to this below if you want to check it out, and just drop me a message if you'd like me to run through it with you one-on-one in more detail. So we're going to set a filter here to get rid of the most expensive companies. We'll set that at 50%. But what we also need to do is avoid value traps, because if we're just looking at what's relatively cheap, we could end up buying stuff that's cheap for a reason. So we can also set this filter here so that we find companies that are still trending higher. That's how we're going to avoid the value traps. Now the core of this is of course avoiding the tech sector, so this will have already filtered out a bunch of those names. But at the top we can select various different sectors. I'm also going to exclude financials and utilities because those aren't sectors that I tend to invest in. Also going to exclude energy, I think. So now we've got our filter set up, I want to walk you through some of the top-ranking companies here that hopefully we can see opportunities in and build our portfolio from. So the obvious place to start is at the top. GTT is the ticker. For ships that transport LNG, liquefied natural gas, they're not the ones doing the shipping, but they own the patents on the technology that is essential for cooling liquefied natural gas so that it remains liquid, I guess, whilst it's being transported. So it's a relatively asset-light business. Currently trading at a 22% discount to fair value, has nothing to do with AI, and it's basically at an all-time high. So I think we're off to a great start there. And of course, none of these are recommendations, so please don't trade on any of this. So returning to the results, in next place we have Hermès. Now you've probably heard of them, the Birkin bags. If you've been conditioned like most of the world to be scrolling social media all day long, It's probably thrust in your face, but it is perhaps the highest quality company in Europe. And what does artisanal handmade handbags have to do with AI? Jack shit. And that's exactly why it's coming up in our no AI filter. An incredible footprint, caters to the truly wealthy 0.1%, and I don't think it takes much more explaining, guys. I'd be happy to do a deep dive in any and all of these that you might be interested in. So let me know in the comments if that's something that you might be interested in. I'll make another video. But in essence, we've got a solid company without the risk of AI, and crucially, it's at a 30% discount. It's on sale currently, which is remarkable. The last time it was this cheap was probably back in like 2016, 2017. If we pull up a chart of old Hermes— that probably sounded gross in the microphone, guys. I'm sorry. The last time it was cheap, 2016, 2017. Well, over the next year or so, if we take the midpoint, say June '16 through June '17, the stock had gained 28%. Going out a couple of years, it was up 60%. So it was returning about 30% a year at that point. And well, the rest is history. It ran up to a peak of 8 times your money from that point. Last time this happened. So of course, past performance is not a guarantee of future results. This being for educational and illustrative purposes only. It's a good job I've got my teeth in and I've had my coffee this morning. But yeah, doesn't look bad, does it? So Hermès definitely makes the list. Also. So I think we're doing well here. Now, the next one on here is a company called Sectra, and I had to look them up. And my understanding is that they're in the health tech space, and they essentially operate a kind of app store. And that begins to sound a bit techie, doesn't it? Particularly considering how the so-called SaaS-pocalypse which hit software— remember when we looked at this chart earlier on? Saw many software companies hardest hit because they could be replaced quite easily with Claude code or whatever the hell, right? So this doesn't sound too good to me. When we have a look down, it might happen to also be at a 20% discount. It might happen to look cheap at the moment, but when you do even a little bit of digging— and I suggest that you do your own research, of course, in all of these companies— they own this app store for kind of premium-priced apps to be on there. And that just sounds like an opportunity. In the words of Bezos back in the day, your margin is my opportunity. I think this is ripe for disruption. What's your app store worth if all of the apps on it have just been destroyed? You're not going to be able to charge the, the high margins. So we're skipping Sectra. Now next on here is Rollins. This is one of my favorite companies of all time. It's in pest control. And I think that might be the most durable business model that I can imagine. Cockroaches will still infest building blocks and whatever, regardless of whether or not we're in a recession, or Trump said this, or inflation's doing that. They're not going away. And Rollins is basically the biggest operator of pest control in the world. And uniquely, what it does is it signs multi-year contracts with its clients, which again makes it more durable to swings in the business cycle. If we are slowing down, clients can't just walk away or stop paying because they're in a multi-year contract. So it's doubly durable. And furthermore, what they're doing is buying up all of these sort of mom-and-pop, these small independent businesses every year, and then using them as like their distribution network. And that's how they're scaling the reach, which means that AI might in fact help them to manage that network better. You think of all the trucks— we have Rentokil in, in the UK, for example, that comes to mind. If you think of that network or fleet of vehicles that's out on the roads and across the country and across the world, you could allocate and also detect like where the pests are in the building more effectively with technology. So it's definitely not a threat. It might in fact, according to the CEO, be an opportunity for Rollins. However, it has sold off quite a bit in the last few months, and that's because it has traded at enormous rating because it was such a durable, predictable business. And that's meant that it's seen a rerating, and it's now 35 to 40% cheap according to history. So this chart's going to look pretty ugly in the short term. And you might think, God, in fact it looks even worse than the companies caught up in the SaaS-pocalypse, right? Caught up with AI risk. But I seriously think that this is an opportunity. If you go back to, you know, 1980, talking like '78, it's been smashing it for like 50 years. Have a slowdown in the early '90s, but this is incredible. This is a major sell-off in the history. So I'm willing to take a bet on Rollins returning to growth, and I would have it in the portfolio. It's a great diversifier. Now I'm actually going to click financials back on because there's a company here that I thought was missing from the list that I wanted to cover, and it's a ratings agency that you've probably heard of. Moody's. Whilst the likes of S&P Global, which licensed the ETF, for example, we were looking at, and the same with MSCI, with the MSCI World Index and the various ETFs, Moody's doesn't have a terminal or an analytics business. It's focused on corporate credit ratings and bond ratings, and those are enforced. Basically has a monopoly there backed by the regulator that imposes by law you must have a credit rating in order to issue bonds. And of course, the entire corporate sector, the world needs to raise money via bonds. That's how corporate America works. It's capitalism, a love story. So therefore, they basically own this legally enforced monopoly, and it has Gone sideways for a little while, probably because there's still some fear in those other competitors that I mentioned that it's probably been unfairly bucketed with. But it's at a 10% discount now. And if you look back over history, bring up Moody's, a stock, by the way, that Buffett owns in his top 10 holdings, you can see that it's been on a hell of a run. Of course, the financial crisis, it was a debt crisis after all. Threatened many of the customers that it had issued ratings on and maybe called into question the accuracy of its ratings. But if you strip that out and just draw like a line of best fit, a regression line as the analysts would call it, that's a 45-degree trend. And it looks to have been basing now for the last year or so. So hopefully it's going to gain some momentum. And I think we've seen free cash flow catch up now. We should see continue higher, at least according to history. So Moody's I'm going to have in the portfolio for that reason, because it's got that moat. So scrolling down here, after Moody's, we've covered Rollins. There's an Indian company in here called Pidilite. Now this company basically has a monopoly on these household name adhesives and things like this. So whether it's sealants, stuff that's used in construction All of these names that are, well, household names in India, and it's been growing cash flow at such a rate it appears to be historically cheap. However, I don't know much about investing in emerging markets, and I'm not sure that I'd want to tie my money up in Indian— is it rupees? Yeah, I keep reverting to Indonesia, Bali here, and rupiah, back in the old rupees. Whilst it's undoubtedly a compounder, it's really a question of whether or not you're comfortable investing in emerging markets. For me, I'd rather look for other opportunities, but nonetheless, it might be one to have on your radar. So I think we might skip that one and continue down the list. So we've got a handful of names so far. Deutsche Börse, so the German exchange, makes our list. And this is a really interesting one because it has a similar business model to Moody's insofar as it's a clearinghouse, an exchange. So trades have to go through their clearing process. Again, it's imposed and enforced by the regulator. So it's kind of like a toll booth business. But it does have some analytics business. In other words, some of the software business. Think of it like a Bloomberg terminal or a Reuters terminal. It has that offering for some of the really big hedge funds as clients. That leaves it somewhat exposed to the risk of disruption, right? However, it is a relatively small part of the business and The CEO has come out to address this, and he was very clear in saying that their strategy now will be to continue to acquire more of these data providers, these data platforms. And the reason is like really, really clever, guys, even though it sounds nerdy and dry, so that then amidst the threat or the advance of AI, they own the raw material. If you think of it as like processing a metal, like making steel or whatever. It's like buying up all the iron ore in the world to control the supply and the input to then make steel when everyone needs steel, or nickel for, say, lithium batteries in the electrification revolution. That's what they're doing. So this is a super smart hedge that could see a load of value added to the company overall. Now I'll pick up the pace a little bit because I don't want this to turn into like a 5-hour long video. But just as we continue to scroll down, I'll call them kind of more quickfire. We've got Old Dominion in here. Per the name, it's a freight company, so it's like the biggest rail freight company, I believe, in America. I believe that Buffett's owned them, certainly back in the day. Berkshire Hathaway is kind of like an old-school industrial stock. It has, because it generates a lot of free cash flow, tended to trade cheap a lot of the time, and you can see that that's always supported the share price, as you'd expect. It has just turned cheap again. So we can add, I think, ODFL to our watch list. Now, as we continue down this list, CME Group appears. So it's not a bad business to own. However, I think it's too similar to Deutsche Börse that we've already looked at to really get excited by it. And because, to my knowledge, it's not necessarily pursuing the same acquisition— get my teeth in— the same acquisition strategy of buying up these raw data companies, the providers that AI will need to be trained on, I can't say that it's a superior business operating in the same sector. So I think we'll give this one a pass. What is interesting is that they've actually developed these futures for trading AI infrastructure and power capacity. When people have spare supply, that could be passed on to someone else for a price. And when you need it, you'd be willing to pay up to a certain point to have it. So that's how they've created a market for this stuff. And they took a very smart decision a few years ago to basically pass on all of the expenses of hosting data and processing this stuff. Because you might— well, you might think, well, they themselves look like they've got a lot of cost in this. They actually passed that on to Google a few years ago with the hosting. So that was a really smart move. So CME, might have it on the watch list, but I think we've already got some exposure there through Deutsche Börse. Now the next company on here, Intuitive Surgical, I'm gonna skip. It's basically healthcare robotics. If this technology goes open source, Google or Tesla, whoever created the robot, all of a sudden you don't need that expensive software anymore. So moving down, this is one that I've just uncovered and is in a super boring industry that therefore makes it very interesting to me at least, and it's called Simpson Manufacturing. So these guys specialize in really boring stuff within construction. So things that secure joists and all these other components that are required by buildings regulations, safety standards, to be present. When you're building these kind of structures, there's extreme liability from a legal standpoint if anything goes wrong. And as I was doing some reading into the company, whilst they do have design software as part of their offering, they're not selling it, it's free. They instead use that as to get a foot in the door, so to speak, to then sell the clients all the bits that they need to pull off the construction. So even though that software could be replicated by someone else, That someone else doesn't have a monopoly enforced by building regs to provide the parts. And as a customer, are you gonna want those two— want to be dealing with two separate parties or multiple parties, or just deal with Simpson? It's not costing you any more, just deal with them. So for that reason, I don't see that as a risk. So this does make the list. I think again, that's another nice diversifier in the portfolio. So we're up to about 7 or 8 names here. And again, I'm going to pick up the pace just for these final couple because this next one is a name that everyone on the planet knows— Ferrari. And it's a company that I got very excited about at the beginning of the year for the reasons that'll become apparent in a second. So we've got a very strong profile which is delivered ultimately, or underpinned by the fact that it's Ferrari, the brand name. And you can see that it's been on sale all year. And it's now beginning to turn a corner, if you pardon the pun. It looks to be ticking up. So when we go into this, sold off to about €300. This actually, sorry, is the US listing, not the Milan listing, and it's rallied already to €420. So it is accelerating. Little to do with AI. It's a company with brand value that apparently added about €150 or €200 million to its sales simply through bloody stitching and custom paint. So it's an incredibly valuable business. Goes without saying that I would have that in my portfolio. So now we've got 7 or 8 names, I think we'll just take a look at 2 more to see if we can make it to 10 and then wrap things up. So Yum Brands, probably heard of. They owned until recently the likes of Pizza Hut. I believe they still operate KFC, but it's another royalty business. They don't actually run the physical premises. It's franchising, it's licensing, and at the moment it's at a slight discount. It's been a pretty strong company when you look at the profile for a number of years, but I think this one has actually been going sideways for some time. I don't think it's beaten the S&P for a little while, so this one might be one for further research. However, zooming out, that is a hell of a trend. So again, we're still able to find high-quality businesses using this screener that aren't exposed to the threat of AI. If anything, it might make the checkout process or distribution and logistics more effective. So Yum, we might have on the, on the list. And then just to wrap up, Nordson. I think this works with like packaging companies. It sells like industrial glue machines to put cardboard boxes together and stuff. And whilst that sounds pretty defensible, it's that sort of Gillette razor model where they sell the expensive bit of machinery and then continue to sell you nozzles and parts and things over the years. But the issue is other more efficient technologies which can be sold at a lower price and have thinner margins could erode Norton's margins and therefore put it at risk. And there's also the rising energy costs to consider, which might see their clients in manufacturing operate at a reduced output and therefore not get through the nozzles and so on as quickly. So this one, it's interesting. I might have it on the watch list, but I'm not as compelled as, say, Ferrari to, uh, to get into it. Nonetheless, pretty nice trend. So last but not least, just to get us up to 10, Procter Gamble. I think a very, very boring company. My grandma even owned them. At the moment, it's 10% below where it should be according to history. Pulling up the chart, an ancient compounder. It's diversified. It's certainly away from the threat of AI. So this might be one to add to the watch list too. So let's see how these would have performed historically and compare that to the S&P and also the global MSCI World ETF. To see whether or not this portfolio can beat the market without tech. So the names on our watchlist are in green, and you can see that over the last 10 years, they've risen 4.5-fold. At one point, they were up as much as 600%. Perhaps the best comparison is to use equal-weight sector ETFs for just the sectors that we've hypothetically invested in here. And you can see that it smashed the benchmark, which is up about 200%, effectively sector neutral. Compared to the S&P 500, which is the million-dollar question, it did beat it. But the problem comes over the last year or so. You can see that our portfolio here in the lighter green color peaked in February 2025 and has been selling off. So what's the reason for this convergence? Well, first of all, the S&P 500 and tech has been dominant, but there's also momentum at play here, and it's meant that fundamentals really haven't been that relevant over the last year. And perhaps the best way to show this, if we just take these off, is to look at a chart of the S&P 500 Momentum ETF, and you can see how this has just rocketed. It'd been rising but has really taken off around the same time that the safer companies here began to underperform. So the game just became high beta, chasing momentum, which is how we arrive at where we are today with investors, I think rightly, nervous about tech and crowding into these up only ETFs, forgetting valuations and the underlying holdings that they represent. Now speaking of which, you can see the shift that's taken place in these no AI names back in February 2025 compared to today. And you can see that all of them have become much cheaper, and in fact all of them are now trading at a discount. But back in February Hermès, for example, was at an 85% premium. It's at a 30% discount today. Moody's was at a 25% premium. Again, 10% discount today. And it's a similar story with Ferrari. And overall, the average for these companies saw them trading at a 10% to 15% premium last year, just as they were peaking, and now are at a 25% to 30% discount. Which means that the share price has obviously sold off, it explains the correction, but cash flow has continued to grow in the meantime, and that's the whole point. So overall, these names are now an awful lot cheaper because this safety premium has now gone in chasing momentum in the tech names. And just to put this in perspective, you can see the equivalent shift in valuations here for the biggest tech stocks in the S&P 500, they were at a 65% premium a year ago, but they've got even more expensive in the meantime. They're now at a near 80% premium to where they should be trading. So if this worries you and you want to avoid AI in favor of the less risky companies, then you're basically betting on reversion here, that the boring stocks that we've just looked at— not to be too harsh to them, are going to be back in demand and perhaps will once again trade at a premium if the tech trade unwinds or it ends in a complete disaster. So they might have fallen behind in the last 18 months, but look at why. Nothing broke in these businesses. What happened is that everyone just stopped paying up for safety and piled into momentum instead. And it was just herd behavior, everybody trying to keep up with this perverted benchmark. And this is key because the version of this portfolio that you'd buy today is a completely different proposition to the one that you'd have bought last year. Exactly the same companies that blew the market away for decades, but now at a 27% discount. Now, if the momentum trade keeps running, these names could continue to fall behind. And I'm not going to pretend otherwise. I have no agenda here. But that's the reality and the choice that you've got in front of you. Tech or cash, but something you can hold at a reasonable price that's now become a lot more reasonable versus a bet that might cost you bloody sleepless nights and could come crashing down at any point. And if you want to see exactly what's in my portfolio at the moment, then watch this video next where I rebuild it with you from scratch using the system that's helped me to make over £350K this year. See you in a minute.