When it comes to investing, some people try to beat the market by buying stocks of companies they think are undervalued and therefore expect higher returns in comparison with index funds. On the other hand, some people do not have enough knowledge or do not want to waste time on analyses as they think they can´t beat the market and as a result they choose from all kinds of mutual funds, such as low-cost index funds.

In this article we will take a look at companies belonging to the Dow Jones index, whose stock performances were higher than performance of this index. Holding these stocks would then result in better returns and we could pride ourselves for beating the market (assuming Dow Jones index as a benchmark).  Time period for which we tracked returns is 10 years, starting on 6/5/2006 and ending on 6/3/2016. Dividend yields of companies are not included.

But before we get there, let´s talk about this index a little bit. Consisting of 30 large-cap blue chips headquartered in US, Dow Jones index was firstly calculated in 1896. Only companies with great reputation, sustainable long-term growth and those that are leaders in their industry can become part of it. Changes of companies in the index occur very rarely.

As of end of May 2016, its market capitalization was 5,342.3 bln dollars, with a median market capitalization 149.1 bln dollars. When looking at sector allocation, industrials dominate the index with 19.17%, followed by financials with 18.62%. Every company in Dow Jones index has different weight. At the top stands 3M Company with weight more than 6%.

On the chart below we can see how the index was increasing and decreasing in value throughout the period of mentioned 10 years.

Dow Jones index

Investing in Dow Jones index would bring us a total return 63.49%. So if we invested 1 000 dollars, we would get 1 634.9 dollars. We can see that if we entered the market at its peak in October 2007, we would have to wait more than 5 years until our position would bring us positive return.

Now let´s find which companies that are part of this index would bring us higher returns. They are summarized in the table below.

Company Ticker Total return Dow Jones index
1 Apple Inc. AAPL 1057,29%     vs. 63.49%
2 Nike, Inc. NKE 427,06%
3 Visa Inc. V 396,91%
4 McDonald´s Corp. MCD 263,54%
5 The Home Depot, Inc. HD 256,54%
6 The Walt Disney Company DIS 241,40%
7 UnitedHealth Group Incorporated UNH 198,97%
8 The Travelers Companies, Inc. TRV 165,94%
9 Microsoft Corporation MSFT 136,27%
10 3M Company MMM 108,99%
11 The Coca Cola Company KO 106,84%
12 International Business Machines Corp. IBM 96,95%
13 Johnson & Johnson JNJ 86,97%
14 Intel Corporation INTC 84,27%
15 Verizon Communications Inc. VZ 79,75%
16 E. I. du Pont de Nemours and Company DD 78,12%
17 Chevron Corporation CVX 74,97%
18 Merck & Co. Inc. MRK 67,52%

As we can see, stocks of these 18 companies outperformed the market during the 10-year period. Apple is on the top, with astonishing return of more than 1 000 %, followed by Nike, whose return 427,06% is not even half of Apple´s. We would double our capital investing in 11 of them.

Performances of the index and these companies during the time period can be seen on the chart below.


Let´s assume the same will be true for another 10 years – stocks of 18 out of 30 companies from Dow Jones index will have better performance. Good news for us, as we have chance of more than 50% that we will beat the market if we randomly choose one of them (costs not included). Moreover, probability of picking stocks of a company that will double our investment is more than 30% (11 companies out of 30 with return more than 100%).

When buying stocks of individual companies, we have to take into account higher risk and volatility related to these investments. But the risk can be rewarded with much bigger return than what we would get if we invested in low-cost index fund, which is on the other hand less volatile and risky.