As we begin 2005, the Wall Street consensus is that the year ahead will be OK. Not great like 2003, when the S&P 500 was up 26%. And not terrible like 2002, when the S&P was down 23%. But OK like 2004, when the index climbed 9.1%. Great. That 9.1% doesn't sound so bad. But I think you can beat that return, just as it was possible to beat the index in 2004. And you don't have to use fancy software, cutting-edge algorithms or proprietary trading strategies to do it. If 2005 unfolds anything like 2004, you should be able to beat the index by applying just three basic investment strategies. The strategies are pretty easy to understand, although finding the right stocks can take a deceptively large amount of work. But that's what I did in 2004, and the return certainly justified the effort: Although I haven't crunched the final numbers, the return on Jubak's Picks for 2004 will be better than 29.5%. There are no promises that this combination of strategies will clobber the index by the same amount in 2005. And I don't claim that this combination will beat the index every year. I think it's likely to work best in years when earnings growth is modest and the market has a lot to worry about even when it's rallying. That's a pretty good description of 2004, so I think there's a good chance of using this strategy to beat the index again in 2005. So what are the three parts of this index-beating strategy? And how do you apply them for 2005?
Look for Double-Digit Earnings Growth
First, understand what the Wall Street consensus values, and buy a core of stocks that will deliver it. For 2005, I think that means buying stocks that will deliver double-digit earnings growth.