TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
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One million dollars invested in the lowest price/earnings ratio companies within the lowest market capitalization group in 1969 would have increased to $29,756,500 on October 31, 1989. By comparison, $1,000,000 invested in the highest price/earnings ratio companies within the smallest market capitalization group would have increased to $2,279,000 over this 20 1/2-year period. One million dollars invested in the largest market capitalization, lowest price/earnings ratio group over this period would have increased to $12,272,000.

Five-Year Holding Period Year-By-Year Investment Returns for Low Price to Earnings Companies as Compared to High Price to Earnings Companies

Josef Lakonishok, Robert W. Vishny and Andrei Shleifer examined the effect of price/earnings ratios on investment returns in Contrarian Investment, Extrapolation and Risk, Working Paper No. 4360, National Bureau of Economic Research, May 1993. The professors ranked all companies listed on the New York Stock Exchange and the American Stock Exchange according to price/earnings ratios and sorted the companies into deciles. Portfolios were initially formed on April 30, 1968 and new portfolios were formed on each subsequent April 30. The study period ended on April 30, 1990. The decile portfolios were held for five years and the average annual year-by-year investment returns, the average annual five-year returns and the average cumulative total five-year returns were calculated. The investment returns were equal-weighted. Table 18 shows the results of the study.

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