Most professional fund managers don’t beat their benchmark index over any meaningful period of time, but that doesn’t stop people investing in their funds. It also doesn’t stop private investors from trying their luck in the markets, despite the fact that most people don’t have access to the same quality of information as the professionals, or benefit from the economies of scale.
So why bother?
Actually there are a lot of good reasons. Private individuals have less pressure to try and track or beat a specific index, and have the flexibility to take on more risk than a fund. Also, they are dealing with smaller amounts of money, so their trades don’t move the market. Their trades do cost more in relative terms, so they have to be careful not to let trading costs erode their profits. Sure, index trackers or exchange traded funds (ETF’s) can have low costs, but many are market-cap weighted, and subsequently end up buying stocks of the larger companies when they are at their most expensive.
I’ve been managing my own personal portfolio for more than 15 years now, and have constantly been searching for the holy grail, but as of yet I‘ve not been able to find anything more reliable than the tried and tested principles of value investing. After all, most stock market returns are made from re-investing dividends, so as long as time is on your side then you are OK…in theory.
However, a few weeks ago I was in a meeting with a Qlik customer (a wealth manager as it happens) and they were showing me how they had used Qlik to transform their sales operations, and how they have used our software to make their advisors much more effective, and to make more money for their customers.
I was thinking to myself at the time that I would like to be able to profit from the amazing work they had done. Then it occurred to me that actually I could - just by investing in that company. Of course it would be high risk to just choose one company, but if I could identify others who were doing the same thing to make extraordinary profits then I might have the investment strategy I’ve been looking for.
So I set about creating the Qlik Index - a stock market index of companies who are achieving success through deploying Qlik effectively, and transforming their businesses in the process.
I started by making a list of the top 30 publicly listed Qlik customers - I ranked them by how many Qlik users they had. I then used that information to build an evenly weighted index, buying an equal amount of each companies’ stock at a specific point in time 5 years ago - so I could track it against some of the benchmark indexes to see how it performed. I also used historical FX rates, which I added from Qlik DataMarket, to track the performance in US Dollars each month over 5 years.
I built this easily in Qlik Sense, and you can see the results below - try looking at the performance here over different periods of time.
I had a feeling that it would be good, but was quite surprised by just how good the performance was - the Qlik Index beat the Dow Jones Industrial Average by 25% over 5 years, without dividends re-invested, and the Dow has had a very good run over that time. Now this doesn’t mean that Qlik software is solely responsible for the out-performance, but it does show a correlation between strong performance and those companies who embrace analytics and use it to make strategic decisions.
It’s not the holy grail of investing, but it’s a very good stock screen – and I certainly won’t be making any new investments in companies who are not embracing analytics for decision-making.
My starting point will be with Qlik customers, specifically those customers who are deploying Qlik throughout their business.
I will continue to monitor the progress of my portfolio using Qlik Sense, and will report back again soon.
Technical Note 1: The yield on the Dow was slightly lower than on the Qlik Index (2.68%), and so I didn’t calculate the impact of re-invested dividends as they were too close for there to be a significant difference.
Technical Note 2: The portfolio was valued each month in US Dollars using the currency rates at that point in time. Weakness in the Euro over the last 2 years eroded some of the potential gains.
Photo credit: PinkPersimon / Foter / CC BY