David Kuo: In spite of the gloom, you can beat the market
Sunday 11 September 2011
If you believe everything you read and hear about Europe, then you may be forgiven for thinking that Western economies are about to be flushed down the pan.
For instance, Josef Ackermann, the chief executive officer of Deutsche Bank, reckons market conditions remind him of the 2008 financial crisis, which spawned the worst global crisis since the Depression.
The second bailout for Greece is showing signs of unravelling as the heavily indebted country struggles to bring its budget deficit under control. The US is not out of the woods either. It has cut interest rates to the bone and still the world's largest economy refuses to grow. It is little wonder that investors have lost faith in political leaders and central bankers.
It would seem on the face of it that the party is over for the West. It would also appear that many equity investors have headed to safer havens of the bullion, Swiss franc and treasury markets. Since the start of the year, the main markets in the West have fallen about 17 per cent.
But, there are some bright spots. The Dow Jones Industrial Average has lost only 3 per cent since the start of 2011 and the Nasdaq is down only about 6 per cent. In Europe, the FTSE has fared better than most markets including Germany, which has slumped 24 per cent. The UK's benchmark index has fallen 13 per cent. So to consign equities to the dustbin of despair is probably premature.
Interestingly, some shares have done remarkably well. In the Dow Jones Industrial Average, McDonald's has gained 16 per cent and IBM is 14 per cent higher.
It is not all bad news in the US financial services sector either, with American Express putting on 13 per cent in the past eight months. In the FTSE, Autonomy, which is being acquired by Hewlett-Packard, has surged 67 per cent, and chip marker ARM Holdings is up 25 per cent. Retailers Next and Burberry have year-to-date gains of 17 per cent and 13 per cent respectively, and British American Tobacco has risen 10 per cent.
There is a way to stay invested and beat the market at the same time. It's called "Beating the market with just two shares". It is a simple twin-pronged strategy. The first spike aims to match the average of a chosen index, eg, the FTSE 100. The easiest way to do this is to allocate a significant proportion of your portfolio, say, about 60 to 80 per cent, to a fund such as iShares FTSE 100. The Exchange Traded Fund matches the performance of the FTSE 100 index.
The second part, which aims to better the performance of the market, is to allocate 20 to 40 per cent of the portfolio to an individual, thoroughly researched company. The key here is to identify truly great companies that are capable of beating the market over the long term. Try this out yourself by back-testing one or two companies that you know very well. You may be pleasantly surprised at how easy it is to beat the market.
David Kuo is director of the financial advice site Fool.co.uk
Scottish Power hit with sales ban by regulator
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
There are 'dark corners' of the investment and pensions industry, says Pension Minister
Midweek Money: The end (of the tax year) is nigh: act now
Bank-beating exchange rates on your international payments
- 1 What happens to your body when you give up sugar?
- 2 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 3 Have sex with your iPad thanks to the new sex toy no-one asked for
- 4 African jawbone discovery pushes birth of humanity back by 400,000 years
- 5 The 'sex selfie stick' lets you FaceTime the inside of a vagina
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
iJobs Money & Business
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads