This Value Approach Always Wins

Consider the following fact in the most recent edition of Barron's: According to Brandes Investment Partners From 1990 to 2010, companies with high price-to-earnings ratio grew sales and profits faster than low PE ratio stocks. That's understandable; after all, the reason stocks command high PE ratios is precisely because investors pay for the fast growth. Yet there is another complimentary fact to this study. During that 20-year period, low PE-ratio stocks had the better stock returns.

It's not difficult to appreciate why low PEs outperform high PEs and to understand why is to appreciate the long-term success of a value-investing approach. Highly valued stocks are expected to generate high rates of growth and when they exceed those expectations, the market rewards the positive surprise. ...475 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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