How has BHP Billiton (LSE: BLT) performed against the market?
If the long-run return on the market is 9.4% (as researchers at Credit Suisse say), investing in shares should be a no-brainer. Somehow, however, all too often our portfolios don't seem to reflect that attractive performance.
This is partly because that 9.4% number is an average derived from 100 years of data. Picking various time periods within that 100 years gives very different outcomes -- and the market almost never actually returns 9.4% in any single year.
Needless to say, unless you're holding a market tracker, your portfolio could have dramatically different results than what the market experiences. If you own a disproportionate amount of winning shares, your returns could be significantly better than the market. On the other hand...
In this series of articles, I'm looking at how individual shares have performed against the FTSE 100 (UKX) during the past 10 years. Today, I'm assessing mining behemoth BHP Billiton (LSE: BLT) (NYSE: BBL.US).
Over the last decade, BHP Billiton's performance has rocketed ahead that of the FTSE 100.
Source: S&P Capital IQ
Since November 2002, BHP Billiton's shares have had an impressive average annual return of 23.3% -- crushing the FTSE 100's 7.4% annual average (these return calculations assume dividends were reinvested).
Share price is one thing, valuation another. So how has BHP Billiton compared on a valuation basis over the years? BHP has traded on an average price-to-earnings (P/E) ratio of 15.6 over the past 10 years -- not materially more expensive than the FTSE 100's average of 13.
Source: S&P Capital IQ and Thomson Reuters
Of course, one of the main reasons for BHP's outperformance over the past decade was the sharp rise in demand for copper, coal and iron ore from the rapidly growing economies of China and India (among others).
Investors who think BHP looks cheap at current prices need to believe the rapid demand growth of the past decade is repeatable. The sell-off in BHP's shares and the decline in metal prices in the past year would indicate the market sees an end to the natural resource boom. Do you?
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> Nate does not own any share mentioned in this article.