In comparison with the USA there have been relatively few studies conducted on what works in investing in the European stock markets.

With this paper we would like to make a contribution and examine what factors led to excess returns in the European markets over the 12-year period from 13 June 1999 to 13 June 2011.

The 12-year period included a stock market bubble (1999), two recessions (2001, 2008-2009) and two bear markets (2001-2003, 2007-2009).

We not only tested the historical value of the factors, but where it made sense, we also tested the 5-year average to see if it is a better indicator to use to generate market outperformance.

When we found a factor that showed strong out-performance we tested it together with other factors to see if two factors generate even more market outperformance.

What if we told you we found a simple two-factor method you can use to select investments that led to a 23.5% per year compound return (market was 2.25%) over the 12 years we tested?

That is a total return of 1157.5% compared with the 30.54% the market returned!

This return was generated by a combination of…