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Writing on Seeking Alpha is overall a very pleasurable experience. I get to share my investment ideas and strategy with tens of thousands of the most astute individual investors on the Internet.

I can confidently say that doing this for the past nine years has made me a better investor, and a better writer, and certainly has contributed to making me considerably wealthier.

But, this is the Internet. And as usual, on the Internet, you get the occasional troll who posts a comment without total knowledge or context. That's fine by me, it's part and parcel of sharing ideas publicly.

This time around, the comment I received on one of my dividend investing articles was the following:

And meanwhile, the QQQ was up 382% in the last ten. Eat Spaghetti Os nightly with your picks or eat caviar/lobster/steak with mine. Kind of a no-brainer!

An interesting analogy, considering that my current diet is made up of 2-3lbs of grass-fed steak daily, fruit, vegetables, and dairy. I had to look up Spaghetti O's.

If my stock picks would force me to eat them daily, I would certainly have to revisit my life choices, as I agree choosing steak is a no-brainer.

But I don't think that diet choices were the main point this gentleman was trying to make.

I believe he was trying to make the point that dividend investing leads to subpar returns and that one would be better suited to investing in the Nasdaq 100, preferably through a low-cost ETF such as the Invesco QQQ Trust ETF (NASDAQ:QQQ).

It's a commonly held belief among certain investors, especially in an era of Magnificent 7 dominance, that to do well one must own the big tech stocks.

Well, here is some news. I don't own any of the 7.

In January this year, I reviewed the performance of our Low Yield - High-Growth dividend portfolio (which still yields more than 2x the S&P 500) against the crowd favorite Schwab U.S. Dividend Equity ETF (SCHD).

The goal was to prove that as active dividend investors, we could add considerable value considered to a passive ETF approach.

After all, isn't that what Seeking Alpha promises? That there's "alpha" to be found, and that active investors can get superior returns?

In this article, I will seek to ask another question: Can boring active dividend investing beat passive tech investing?

We will use QQQ as a source of comparison and compare it to our All Weather Hybrid Dividend portfolio which was started in May 2020 on Seeking Alpha.

When we first started this portfolio which we shared here on Seeking Alpha we said:

The primary goal will be to maximize dividend income 10 years from now by striking a balance between identifying opportunities for dividend growth and minimizing the risks of dividend cuts.

A secondary goal will also be to beat the S&P 500 in terms of total returns over the 10-year period. Failing to do so would make our efforts just an expensive hobby, as at the end of the decade we could just convert an S&P 500 ETF into dividend stocks and be better off, were we to fail.

In making this comparison article then, I will review some key portfolio metrics of our portfolio vs. the SPY, and the QQQ vs. the SPY, and ultimately, us vs. the QQQ.

In other words, we will use the S&P 500 as the market benchmark, and look at metrics like beta, alpha as well as total returns.

I won't make you wait too long, though.

Since inception in May 2020, our Hybrid Dividend portfolio has returned a total of 114.6%, vs 106.01% for the QQQ, outpacing it (as of market close on Aug. 9, 2024):

During the period the QQQ had a max drawdown of 32.66%, while the Hybrid Dividend portfolio had a maximum drawdown of 13.8%.

Some of you might be wondering if I'm cherry-picking our Hybrid model portfolio instead of presenting our low yield or our hybrid model portfolio.

No, this isn't the case. I'm picking the Hybrid portfolio as it was incepted in May 2020, while the two other portfolios were incepted in January 2021.

During May-December 2020, the QQQ had a magnificent 35% increase in value, which outpaced the Hybrid portfolio. I wanted to provide the fairest comparison possible, so chose to include this one.

By the way, the two other portfolios have also outpaced the QQQ quite more significantly since their inception.

So in using the Hybrid portfolio and not our other portfolios, I'm showing the QQQ in the best possible light.

The Hybrid Dividend portfolio invests in stocks across the yield spectrum which provides good combinations of dividend yield and dividend growth.

The strategy can be understood as mainly buying "all-weather" blue-chip dividend stocks, supplemented by what we call "fair weather" dividend stocks. The latter do well only in certain environments but often offer great opportunities for capital gains and dividend increases.

As of the time of writing, the portfolio is weighted 65.75% in what we call "All-Weather" and 34.25% in "Fair Weather" stocks. This distinction is based on our subjective assessment and has sometimes proven to be wrong.

Then within a universe of high quality, moat-driven business we seek to:

We have gotten very geeky about that last point. We have worked out the growth rates which are required for a given yield based on the investors' time horizon.

But that's basically it. We use our DFT charts to help us figure out relative valuation, but of course, we go way beyond this.

The Pfizer Inc. (PFE) DFT Chart below gives a good example of how we have used it to choose entry and exit positions. Of course, this was used in conjunction with deeper fundamental analysis and playing certain trends.

We're not doing anything particularly new. We're just setting as many factors as we can on our side. And of course, we have our fair share of mistakes.

We play humble when we make mistakes and the fundamentals deteriorate and sell at a loss rather than continuing to hold or double down on losing positions.

For instance, we as many here on Seeking Alpha got it wrong with Medical Properties Trust, Inc. (MPW).

We bought the stock at $16.5 in August 2022 and sold it the next year at $9.

Sometimes we get out earlier, and sometimes we sidestep such bombs altogether, as we did when we sold 3M Company (MMM) at $200. Occasionally, we get out a little late.

The important thing is that you don't get the impression that all we do is win.

Everyone loses money in stocks occasionally. From Buffett to Lynch, and certainly to Cathie Wood. The important thing is to look at the portfolio overall and understand what you're getting out of it.

We'll look at that in a minute.

As of the time of writing the portfolio is overweight REITs, Consumer Discretionary, and Financials.

It has a makeup which is considerably different from that of the S&P 500 which is displayed below.

This is important to note as it will help explain a lot of divergences in performance we'll see later.

We go underweight and overweight in different sectors depending on our perceptions. There was a time when energy was over 25% of the portfolio, coming out of the pandemic.

That's enough of an introduction to this portfolio, let's move on to QQQ.

The QQQ ETF is not an easy benchmark to beat. Let's introduce it.

Together, these 10 holdings make up 49.5% of the portfolio.

Only one of them, Broadcom Inc. (AVGO), is part of the Hybrid Dividend portfolio.

The index is built by taking the largest 100 non-financial firms which are listed on the Nasdaq and weighing them by market cap.

Unsurprisingly, the portfolio is very overweight tech, with half of its positions being in tech, with the bulk of its communications and consumer cyclical stocks also being effectively tech stocks.

In recent years, the Nasdaq-100 index has done very well, as the gentleman with the Spaghetti O comment pointed out. This can broadly be understood by a few factors.

This introduction should suffice, after all, if you're here, you likely already know how these indices are made and why tech has done well.

There is some overlap in our portfolio and the QQQ but not much.

Like I said, AVGO is in our portfolio. PepsiCo, Inc. (PEP) is in our coverage but currently not in our portfolio. Amgen Inc. (AMGN), Texas Instruments Incorporated (TXN), Comcast Corporation (CMCSA), Automatic Data Processing, Inc. (ADP), Mondelez International, Inc. (MDLZ) and American Electric Power Company, Inc. (AEP) are in both portfolios.

And that's it. Our portfolio is exposed to a total of 8.47% of the Nasdaq 100 index, and less than 4% if we exclude Broadcom.

It should be quite clear that our portfolios couldn't be more different.

So without further ado, let's compare returns.

Let's take a deep dive into the portfolio returns and the nature of these returns, pitting the Hybrid and the QQQ and the S&P 500 (SPY).

I'll cover total returns, but is that all there is to it?

I'd argue that no, that isn't all there is to it.

Of course, ultimately the destination is all that matters (and so far in that category Hybrid wins), but I'd argue that volatility and how we get there also matters.

At least if we don't want investing to be the cause of unnecessary stress.

So I'll attempt to look at the portfolio returns the way the professionals do.

Earlier I posted the time-weighted portfolio return chart (the gold standard when it comes to measuring returns).

So over the period, the ranking for performance has been the Hybrid portfolio number one, QQQ number 2, and the SPY number 3.

But that wasn't the case every single year. Here are the total returns for each year.

I highlighted in bold the best portfolio for each of the years.

So the QQQ and the Hybrid were the best portfolios to own in two of each years.

Both in 2020 and in 2023 when the largest constituents of the Nasdaq 100 soared, we couldn't keep up.

In 2021, however, which was a more balanced year, we managed to just about beat the two benchmarks.

More importantly, when the S&P 500 and the Nasdaq 100 tanked in 2022, we were up 5.59%. If you look back at our charts just above, you'll see that this is where the largest part of our outperformance came from.

Of course, the staggering 54.99% return in 2023 closed the gap, and 2024 saw the QQQ power forward, but with the latest growth scare, the Hybrid is back on top.

This is exactly my point: When the market goes up, we fight to have our more conservative, less volatile (as we'll see in a minute), more value-oriented portfolio do well. But in panics, we usually have our portfolios geared not to take so much heat.

In the end, it seems to be that we're coming out on top or just as well as the QQQ, without all the massive valuation risk.

I don't have a crystal ball. But the latest growth scare tells me that the valuations of a lot of these stocks are getting shaky. I, personally, expect another rally in the S&P 500 to the 5,800-6,000 range, which will require the top stocks of the QQQ to rally also.

This has been my baseline target for this market. After that though I expect a correction.

I don't think the decline in price that we witnessed so far is enough to call for correction. I always like to recall an answer from Paul Tudor Jones in an interview he did with Tony Robbins:

My metric for everything I look at is the 200-day moving average of closing prices. I've seen too many things go to zero, stocks and commodities. The whole trick in investing is: "How do I keep from losing everything?" If you use the 200-day moving average rule, then you get out. You play defense, and you get out.

I'll show price charts with the 200-day moving average of the top 10 constituents of the QQQ below.

As you can see, the vast majority of them are still above their 200D moving average after the past correction.

But a couple of the constituents have dipped below their 200D moving average: Microsoft, and Amazon.

Tesla also has dipped below, although I had some issues generating the chart for some reason.

Dipping below the 200D moving average isn't necessarily bearish, but it's cause for caution. If the stocks fail to reclaim a price above their 200D MA in short order, it's looking bearish for them. This does make it a good time to harvest some gains in these stocks.

But when the market really does turn south, we've had a small taste of it: Our Hybrid portfolio will be well positioned, but the S&P 500 and the QQQ won't.

Market leaders in bulls become the bellwethers of declines. I expect 2024 to be a tough year still for the Hybrid portfolio to compete, with better outcomes when this bull market corrects.

What's more is our portfolios are less volatile. The max drawdown for the QQQ over the period was 32% while the Hybrid portfolio was 13.8% and the S&P 500's was 23%.

This means it would do well to look at portfolio betas over the period.

I'll calculate betas for the QQQ and for the Hybrid portfolio relative to the S&P 500.

During the entire period (May 2020 to July 2024) using monthly returns, the QQQ had a Beta of 1.17 while the Hybrid portfolio had a Beta of 0.88.

Betas help investors understand how sensitive portfolios are to movements in the overall market, in this case, the overall market is considered to be the S&P 500.

So a portfolio beta of 1.17 means that for every 1% move in the S&P 500 (up or down), the QQQ is expected to move 1.17% in the same direction.

A portfolio beta of 0.88 means that the portfolio has less volatility than the S&P 500.

As such the Hybrid portfolio can be understood as a more conservative portfolio that does better when the market is suffering and lags a little when the market goes up.

This matches well with my belief that the best offense is defense.

I also calculated yearly betas for QQQ and Hybrid, which show that even over more concentrated time periods, the overall trend continues to play out, with 2023 being an outlier year in terms of betas.

So our Hybrid dividend portfolio generally fits the bill as a less volatile portfolio than the S&P 500 and the Nasdaq 100 as a more volatile portfolio.

Jensen's alpha is a measure used to evaluate the performance of an investment portfolio or asset compared to its expected return based on the market's performance. It helps investors determine whether a portfolio manager has added value through active management.

Jensen's alpha looks at the portfolio return in excess of its expected return as defined by... risk free rate + beta x (market return - risk free rate).

We'll be looking at these alpha's in ex-post, filling in the beta for each year and the market return.

I'll use 2% as a constant risk free rate. Of course, you can and should argue with this, but it doesn't really change much and for simplicity over the periods will keep it as such.

Here there is something interesting to understand.

In 2022 being overweight the Magnificent 7 led to negative alpha. Avoiding them meant easy positive alpha.

In 2023 this trend reversed, as the QQQ's concentration created alpha over the S&P 500.

Not owning any of them meant that our portfolio performed way worse than it would have been expected from its volatility.

The jury is still out for 2024. Let's see. Based on this, our performance has been OK, I would say. Once again it's been a tough market to compete in, and overall, we've come out quite well.

Let's move on to Sharpe ratios.

The Sharpe Ratio is a popular measure used to evaluate the risk-adjusted return of an investment portfolio or asset. It helps investors understand how much return they are receiving for each unit of risk taken.

Over the analyzed period, looking at annual returns, QQQ has a Sharpe ratio of 0.6, the S&P 500 of 0.73, and the Hybrid of 1.35.

A Sharpe Ratio above 1 makes you "good" in asset management. It says you're generating more returns than would be expected for the amount of risk you're taking on.

The Hybrid portfolio therefore has the best risk-adjusted returns of the three, which means that we are adding value as active investors.

There are many ways to skin a cat.

Nobody can look at the QQQ over the past decade and say that it was a "bad" vehicle. Just buying and holding it would have taken care of you.

In fact, just buying and holding it since the inception of the Hybrid portfolio would have gotten you just as far as we are, without any of the work.

Of course, it would have been a much bumpier ride, and the downside risk and chance that it all goes down from here is much higher with the QQQ than with the Hybrid.

Look at the Hybrid portfolio after a bear market, and you'll see it dominate the QQQ. Look at it in isolation during a bull run, and a different story might emerge.

I believe it's fair to say that matching (in fact slightly beating) the QQQ's performance while providing much, much, less volatility, should be worth something and talks to our ability as stock pickers and asset managers.

We're not perfect and have had better years than others, but our strategy, which focuses on generating stable growing dividend income while doing as well as or better than the major indices, clearly works.

To go back to the opening comment, I believe that our strategy can also allow you to eat steak every day and not Spaghetti O's and do so without the chance of heart attack from the violent ups and downs.