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TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
(continued from preceding
page)
Companies in the United Kingdom, France, Germany, and Japan Trading at Low Prices in Relation to Book Value
John R. Chisholm examined price to book value and investment results for companies in the United Kingdom, France, Germany and Japan in "Quantitative Applications for Research Analysts", Investing Worldwide II, Association for Investment Management and Research, 1991. Companies in each country were ranked according to the ratio of price to book value at the end of each year and sorted into five equal number groups (quintiles). The study period was December 31, 1974 through December 31, 1989 (15 years). Equal investments were assumed to have been made in each stock, and the stocks were assumed to have been sold after one year. The results were U.S. dollar results. Table 11 below shows the annual compound returns for the top and bottom quintiles.
Table 11:
Investment Results According to Price in Relation to Book Value in the United Kingdom, France, Germany and Japan, December 31, 1974 - December 31, 1989
Annual Compound Returns
|
Price to Book Value Category Lowest price to book value quintile Highest price to book value quintile |
Kingdom |
|
|
|
William F. Sharpe, a Nobel Prize winner in economics, and Carlo Capaul and Ian Rowley, from Union Bank of Switzerland, examined the comparative investment returns of low price to book value stocks ("value" stocks) and high price to book value stocks ("growth" stocks) in France, Germany, Switzerland, the United Kingdom, Japan and the United States in "International Value and Growth Stock Returns," Financial Analysts Journal, January-February 1993. Each six months the stocks which comprised a major index in each country were ranked on the ratio of price to book value. The Standard & Poor's 500 Index was used for the United States and Morgan Stanley Capital International indexes were used for the other countries. Within each country, the highest price to book value stocks whose total market capitalizations accounted for 50% of the entire market capitalization of the particular country's index were defined as the growth stock portfolio. The lower price to book value stocks which, in aggregate, accounted for the remaining 50% of the entire market capitalization of the index were defined as the value portfolio. The monthly return for each of the two portfolios was the market capitalization weighted average of the total returns on the underlying stocks. The cumulative difference between the investment returns of the value stocks and the growth stocks in each country over the 11 1/2-year period, January 1981 through June 1992 are shown in Table 12.
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