It occurs to me that maybe the way to beat the S&P is to focus on the losers and not the winners.

That is, if you could figure out which listed companies were going to fare the worst and build a partial index fund with the rest, you'd beat the index.

Similar research style to short selling but with less downside.

In order to beat the market, you have to know something it doesn't already know. But eventually, it's (they're) going to learn that, too, so you'll have to learn something new. The only way to keep beating the market is to gather information faster than the "average" and keep up with the information that it has, relative to what you invest in, although usually you can accomplish most of the work in the latter half (beta, IIRC) by watching the market itself. In brief, as Martin Shkreli put it: invest in yourself...

Unexpected takeovers make this much harder than it seems.

For example, Twitter's prospects on its own don't look so great right now. But if that induces you to avoid owning Twitter, you miss out on a quick profit (perhaps even a big one!) if some larger company decides to buy it.

I don't think it's any easier to find companies that will under preform. Apple stock seems over priced right now with P/E:17.66 and not so great growth prospects, but so does Amazon and Facebook and the rest of the S&P 500 when you take a close look.

If picking the winners is impossible, how would picking the inverse set (e.g. losers) be any different?

I'd assume it's because most companies aren't big winners or big losers.

In theory a company's expected poor performance is already priced into the stock.

I wasn't able to find actual data on his performance, what I found is that: "Cascade does not publicly disclose its performance results". If someone has actual numbers I'd be happy to see them.