By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Entertainment One Ltd. (), which is up 64%, over three years, soundly beating the market return of 4.4% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 22% in the last year, including dividends.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we