In the long run, we’re all dead

7 Jan 2009

Yesterday I mentioned the fact Amsterdam’s AEX index is having such a wonderful start of 2009, outperforming the rest of the world. Nothing bad about making a positive result in three days, but it turns out the Dutch market index is a true underperformer over the past years. According to the an Australian newspaper the AEX ranked nummer 19 in the list of last years worst performers:

Reykjavik (OMX index) -94.4 per cent
Moscow (RTS) -72.5 per cent
Dubai (DFM) -72.4 per cent
Bucharest (BET) -70.5 per cent
Dublin (IOI) -66.2 per cent
Hanoi (HCMSI) -65.9 per cent
Shanghai (SE Composite) -65.4 per cent
Athens (Athex) -65.3 per cent
Vienna (ATX) -61.2 per cent
Lima (IGBVL) -59.9 per cent
Pakistan (KSE-100) -58.3 per cent
Riyadh (Tadawul) -56.5 per cent
Cairo (Case 30) -56.4 per cent
Brussels (Bel-20) -53.8 per cent
Helsinki (OMX Helsinki) -53.4 per cent
Budapest (BSEI) -53.3 per cent
Oslo (OBX) -52.8 per cent
Mumbai (Sensex 30) -52.5 per cent
Amsterdam (AEX) -52.3 per cent
Istanbul (ISE 100) -51.6 per cent

The collapse of Fortis and problems of other financials weighted heavily in the AEX. Bad luck. On a ten year basis however, the situation is even worse. Iceland’s crash saves the AEX from the last place in a ranking of 84 indices. From Paul Kedrosky’s Bloomberg terminal:

This overview doesn’t fully explain how it handles the currency effects and the dividends. The annual dividend yield in the AEX of, say, 3% makes quite a difference in the total result. The main cause of this terrible performance is the set of rules for selecting stocks in the AEX. The traded volume of stocks is the main criteria for the indexcomposition. Ten years ago the internethype boosted shares like UPC and KPNQwest to astronomic levels before they were added to the AEX. By following the latest fashion the oldest index in Europe had outperformed it’s peers in the ten preceding years. But as the fashionable John Maynard Keynes already correctly noted, “In the long run, we are all dead”.

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