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TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
(continued from preceding
page)
Henry Oppenheimer screened securities listed on the New York and American Stock Exchanges to select those issues that met Graham's criteria on each March 31 from 1974 through 1980. An investor who had employed Graham's criteria during this period achieved a mean annual return of 38% as compared to 14% per year, including dividends from the market index, the Center for Research in Securities Prices index of NYSE-AMEX securities. Table 15 shows the study results by holding period.
Table 15:
Benjamin Graham's Price Earnings Ratio Criteria
|
|
Low P/E Annualized Return |
Annualized Return |
Firm Size (Millions) |
Firm Size (Millions) |
as Compared to Large Market Capitalization
Low Price/Earnings Ratio Companies
Sanjoy Basu examined the effects of market capitalization and price/earnings ratios on investment returns in "The Relationship Between Earnings Yield. Market Value, and Return for NYSE Common Stocks", Journal of Financial Economics, December 1983. Professor Basu ranked all companies listed on the New York Stock Exchange according to price/earnings ratios and sorted the companies into quintiles. Then, each quintile was ranked according to market capitalization and sorted into sub-quintiles within each of the price/earnings ratio groups. This process occurred as of each April 30 from 1963 through 1980 (a 17-year period ended April 30, 1980) and the annual investment returns were computed. Table 16 shows the results of this study.
Page 17 of 42
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