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Here's an update to some research I've shown before. The data comes off Professor Ken French's data library. This shows stock market performance ranked by P/E Ratio decline. Stocks with the lowest P/E Ratios do the best, while those with the highest P/E Ratios do the worst. I've also included a line for the overall market.

There's a small quirk to the data. The decile markers are determined by NYSE stocks, and those are then placed on the entire universe of U.S.-traded stocks. As a result, the deciles with lower P/E Ratios tend to be smaller than the deciles with higher P/E Ratios. You can see that the market line isn't doesn't quite fall in the median. This doesn't undermine the lesson that value investing has done better, but it's less dramatic than the numbers here suggest.

Here's how the annualized performance numbers for the deciles (from June 1951 through September 2009)

One 8.51%
Two 8.58%
Three 10.66%
Four 10.39%
Five 11.11%
Six 13.38%
Seven 13.69%
Eight 14.28%
Nine 15.64%
Ten 16.65%

Posted by edelfenbein at November 19, 2009 9:05 AM