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TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
 (continued from preceding page)


As Table 8 indicates, the low price to book value stocks outperformed the high price to book value stocks in 16 of the 22 years, or 73% of the time. For three-year holding periods, the low price to book companies beat high price to book companies in 18 out of the 20 three-year periods. For five-year holding periods, the low price to book value companies were a better choice than the high price to book value companies every time.


Are Low Price to Book Value Stocks' Higher Returns, as Compared
to High Price to Book Value Stocks, due to Higher Risk?
In an attempt to examine whether the higher returns of low price to book value stocks were due to greater risk, Professors Lakonishok, Vishny and Shleifer measured monthly investment returns in relation to price as a percentage of book value between April 30, 1968 and April 30, 1990 in the 25 worst months for the stock market, and the remaining 88 months in which the stock market declined. In addition, monthly returns were examined in the 25 best months for the stock market and the 122 remaining months in which the stock market increased. The results of this study are shown below in Table 9.


Table 9:
Average One-Month Investment Returns in Relation to Price as a Percentage of Book Value in the Worst and Best Stock Market Months, April 30, 1968 through April 30, 1990
                                                                                          Price As a Percentage of Book Value Decile
                     (Highest Price as a Percentage of Book Value)  (Lowest Price as a Percentage of Book Value)





Worst 25 months
in the stock market
Next worst 88 months
in the stock market
when the stock market
declined
Best 25 months
in the stock market
Next best 122 months
in the stock market
when the stock market
increased

1



(11.2%)



(2.9)







11.4



3.8

2



(11.0%)



(2.8)







11.4



4.0

3



(10.4%)



(2.6)







11.9



3.9

4



(10.0%)



(2.5)







11.3



3.7

5



(9.7%)



(2.3)







11.2



3.6

6



(9.1%)



(2.0)







11.3



3.7

7



(9.3%)



(2.1)







11.8



3.8

8



(9.2%)



(2.0)







12.6



3.7

9



(9.8%)



(1.8)







13.3



3.8

10



(10.2%)



(2.2)







14.8



3.9

As Table 9 indicates, the low price to book value stocks outperformed the high price to book value stocks in the market's worst 25 months, and in the other 88 months when the market declined. In the best 25 months for the market, the low price to book value stocks also beat the high price to book value stocks. The monthly results were similar for both high and low price to book value stocks in the remaining 122 months when the stock market increased.

The professors conclude: "Overall, the value strategy [low price to book value] appears to do somewhat better than the glamour strategy [high price to book value] in all states and significantly better in some states.

Page 11 of 42

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