%0 Journal Article %A Keith Anderson %A Chris Brooks %T Extreme Returns From Extreme Value Stocks %B Enhancing the Value Premium %D 2007 %R 10.3905/joi.2007.681825 %J The Journal of Investing %P 69-81 %V 16 %N 1 %X Investigations into value-based ‘anomalies’ such as the P/E effect typically sort shares into quintiles, or at most deciles. These are blunt instruments. We test whether most of the extra value in the lower end of the P/E spectrum is to be found in the very lowest P/E shares, and whether the worst investments reside in the few shares with the highest P/E. Using a long-term definition of earnings, and attributing influences on the P/E to company size and sector, we find that small portfolios of value shares give returns of 40%+ per annum, while small portfolios of glamour shares give returns less than the risk-free rate. We thus show that by more judicious use of the P/E ratio, we can considerably enhance the value premium.TOPICS: Style investing, portfolio construction, equity portfolio management %U https://joi.pm-research.com/content/iijinvest/16/1/69.full.pdf