The best performance indicator

History is a fairly common benchmark, it is both a precursor and a predictor. The history of stock markets are most commonly used to predict the future of them, past events are predictions of future events, this might not always be precisely accurate, but it's in the same ball park. I have found that history and averages go hand in hand.

Averages

Averages are a good predictor of possible future results such as growth. Take the past 10 years performance of a set index, let's take the S&P 500 for instance, over the past 10 years it has seen a 204% growth, divide this by the number of years and it gives you a 20.4% average per year. Although this falls over a 10 year period which spans over a pandemic, as well as a war, it is a good indicator of the possible future gains that are yet to come.

Although when Averages are applied to a singular stock there are a lot more varaibles to consider, thus making in a bit more complicated. But from my experience when averages are applied to a group of stocks such as a index(ETF/Fund) it is more accurate to predict future results. This is due to the fact that those indexes have certain criteria in order to form part of the index, thus once that criteria is met they are included, thus the results stay somewhat constant.

Using average

Using averages is so simple a 10 year old can do it. All you need to do is take the cumulative past performance of a index, divided by the total number of years and then you have your performance projection.

For example -

Nasdaq 100 (NDX):

• 10 Year Growth = 390%
• Growth / Period = 390%/10
• Average growth = 39% Per year expected growth

S&P 500 (GSPC):

• 10 Year Growth = 204%
• Growth / Period = 204%/10
• Average growth = 20.4% Per year expected growth

FTSE 100 (FTSE):

• 10 Year Growth = 34%
• Growth / Period = 34%/10
• Average growth = 3.4% Per year expected growth

These examples do no include reinvestment of dividends received

You can use this method on ETFs and Mutual funds in order to project your possible returns. However using these on stocks are risk because indivdual stock, even when consistent, are subject to a lot more volatility.

Thinking outside the box

Seeing these indexes and funds perform the way they do, one can c0nstruct a portfolio based on the stocks within these funds and indexes. In short you'll look at the top performers or biggest holdings by percentage and use the top 10 or 20 etc. to construct you portfolio, this will most likely allow you to outperform the market by tapping into the best performers or highest valued companies.