Stock selection could be so easy … if investors had a crystal ball and knew which stocks would perform best in the next ten years. But good performance would still not be guaranteed. “In the past, some ‘super shares’ got off to such a bumpy start that some investors probably got cold feet,” says Sven Lehmann.
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For his study, the fund manager of HQ Trust looked in the rear-view mirror. Sven Lehmann determined which stocks have outperformed the broad market MSCI ACWI by an average of ten percent per year since 1994. All in all, this applies to 1665 different stocks, which can of course appear over several periods of time. His analysis shows that this outperformance has by no means been linear. All stocks that are currently in the MSCI ACWI were examined. The calculations always took place at the start of a calendar year.
– “The ‘super shares’ had considerable difficulties to get out of the starting blocks.”
– “After the first year, about two thirds of the top performers outperformed the market. However, this also means that one third did not succeed.”
– Their underperformance is in some cases considerable: after one year, around twelve percent of the ‘super shares’ were at least 25 percent below the benchmark index, and three percent of the shares were even more than 50 percent behind.”
– “After three years, the percentage of outperformers among the ‘super shares’ has risen to 84 percent. However, this means in return that every sixth share still ranks behind the MSCI ACWI and will only make up for its underperformance in the following years.”
– “When buying shares, trust and staying power are also important: Even a good company does not consistently outperform the market.”
Two prominent examples:
The Australian pharmaceutical company CSL, which has always outperformed the index by more than 10 percent p.a. in all 16 ten-year periods since 1995, was more than 40 percent relatively behind the benchmark, the MSCI ACWI, in 2002, and still 28 percent at the end of 2004. At the end of 2011, however, the CSL share was 188.5 percentage points ahead of its benchmark.
Even Apple, which had always outperformed the index by more than 10 percent p.a. in 15 periods over ten years since the end of 1995, was behind the benchmark in five cases in the first year. In the years 2000 to 2002 Apple ranked relatively 52.4 percent behind the ACWI. But at the end of 2009, the share was a full 492 percentage points better than the index.
(In concrete figures, this means that if 100 euros had been invested in both Apple and the MSCI ACWI at the end of 1999, the Apple investment would only have been worth 26.63 euros at the end of 2002. But the investment in the ACWI was 56.01 euros. At the end of 2009, however, one would have received 572.87 euros back from Apple and only 76.35 euros from the ACWI).