It seems to me that there are two primary categories of successful investments that beat the S&P 500 over the long haul.
Category 1 involves buying replenished known quantities. You can look at Colgate-Palmolive or Hershey, and conclude based on past history that when the price is X and conditions Y, Z, and Q exist, the investment has been successful in the past. That informs the decision to make the investment, and gives the much needed confidence to ride through the lows.
Category 2 involves buying companies with brighter projected futures than pasts. You can look at Union Pacific in 2005, and then conclude that conditions Y,Z, and Q look better going forward, so paying X price now is actually much better than the last time. Bill Gates has had a knack of spotting this before Warren Buffett.
My instinct is that Category 1 is easier to execute and can satisfy all your material needs if you have a high enough savings rate and give it enough time. But Category 2 seems to be more lucrative if you get it right, but carries a higher risk of failure.
Originally posted 2015-07-17 00:01:47.