four key value factors in investing
TRANSCRIPT
O'SHAUGHNESSY'S FOUR VALUE FACTORS THAT OUTPERFORM OVER LONG PERIODS OF TIME
*REAL COMPOUNDED RETURNS BY DECILE 1951 TO 1996 FOR ALL US STOCKS OVER $150MN MARKET CAPITALIZATION (IN 1996 MONEY)
*Note: The $150mn market capitalization limit was deflated for inflation each year back to 1951.
In his study, O'Shaughnessy divided up the universe of all U.S. stocks above $150mn market capitalization (in 1996 money) into deciles based on their valuations. He then tracked the returns from holding each stock for 12 months. These four valuation measures were most striking in that they showed a clear relationship between cheaply valued stocks and high returns and expensive stocks and low returns.
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th0%
2%
4%
6%
8%
10%
12%
14%
16%
14%12% 12%
12%
10%9%
8%
6%
4%
1%
Price to Sales
Real
Ret
urn
1951
-199
6
CHEAPEST DECILES MOST EXPENSIVE DECILES
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th0%
2%
4%
6%
8%
10%
12%
14%
16%
12% 12%
10%
8% 8% 9%
7%6%
7%
5%
Price to Cashflow
Real
Ret
urn
1951
-199
6
CHEAPEST DECILES MOST EXPENSIVE DECILES
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th0%
2%
4%
6%
8%
10%
12%
14%
16%
11%
13%11%
10%9%
8%7% 6%
7% 7%
Price to Earnings
Real
Ret
urn
1951
-199
6
CHEAPEST DECILES MOST EXPENSIVE DECILES
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th0%
2%
4%
6%
8%
10%
12%
14%
16%
12%11% 11%
10%
9%8% 8% 8% 8%
7%
Price to Book
Real
Ret
urn
1951
-199
6
CHEAPEST DECILES MOST EXPENSIVE DECILES
Source of historic performance data: O'Shaughnessy - "What works on Wall Street"