It works until it doesn't. And it can stop working very fast. Which is the scary part. But then it also depends on entry point. If you entered early even going down say 40% or 60% might not make you go red.

Yeah, investing in the top companies leads to higher returns for most periods when looking short term.

Over longer periods, the top companies by market cap tend to change though. https://www.investmentnews.com/equities/only-one-of-the-worl...

So if you want to invest in the top companies, you either need to think they won’t change anymore, or you need to find when to buy and sell. Index funds solve this problem for you, albeit with slightly lower returns in the short term.

It's only a "strategy" because you know what happened to the share price. If you can tell the future why not buy the lottery instead.

> So a viable strategy would be to only buy the best 7 stocks? Like the Dogs of the Dow, but reversed? (The Gods of the Dow?)

Or go with a NASDAQ 100 index: you'll generally get higher returns than the S&P 500 or Russell 3000, but you'll also get higher volatility. How well would you sleep at night with drops of -20% more often?

* https://www.investopedia.com/nasdaq-100-or-s-and-p-500-the-b...

Reminder that US stocks can do badly (and the only thing that could save US domestic investors is bonds):

* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...

This is probably ok if you consistently sell stuff that exits the top7 and buy stuff that enters, but I kinda doubt it's all that much better. Same as the s&p500 and the Russell 5000 have really similar returns.

You'll be more exposed to screwing things up when companies enter/leave.

Yes. If you know which stocks will do best over the next year (or other time period), only buy those.