Do Big Caps Pay?

A revealing look at two large caps. Above is Tesco and below is BP for data between 2003 and end 2010. The Magenta line is the actual stock price.

The Blue line is data corrected for percentage change in the FTSE for that day:

C(n+1) = C(n) * S(n+1)/S(n) * F(n)/F(n+1)

= S(n+1) / F(n+1) * F(0)

C(x) = corrected price for day x
S(x) = stock price for day x
F(x) = FTSE price for day x

Assuming that the FTSE grabs the general economic data, including growth and inflation, then the remaining graph is the actual performance of the stock. What is surprising is the low return of only around 50% in 8 years or 5% per year. This is admittedly growth on top of inflation (which the FTSE data ought to remove) but it isn't impressive given that a careful trade can gain you 5% in a day. There was 9% just today on an oil stock in my portfolio (RRL) that I have held for only 6 months; that against the FTSE of only 2%. That's equivalent to 16 months investing in Tesco! I must thank a friend for alerting me to the potential of oil stocks at this time.