Organisation Structure
thod will usually prove to be good enough in most practical applications. However, it ignores the effect of the economy as a whole. The result is that we can believe (particularly if we have a small portfolio) that a company is doing very well, when the truth is that its performance is relatively mediocre but the economy itself is booming.
Often this will not matter, but if we wish to refine our system further we can also plot a measure of the economy in the same way. The usual measure used is the FT 30-share index, but you may feel that another index is appropriate.
A further refinement is to divide the share price by the FT index. You can either divide the price by the index for that day or divide an average by the average index for the same period, the answers will be the same. The resultant number will not represent anything in itself, but its increase and decrease will show how the company is doing relative to the rest of the economy.
This figure is no alternative to the share's own moving average, but can alert you to a company or sector that is performing particularly well or particularly poorly.
If you are plotting values on a graph, a simple alternative is to plot the index on the same graph. If the shares are performing in line with the index, their lines will be parallel. Increases in the gap between them show that the company is doing better than the econom
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