PT - JOURNAL ARTICLE AU - Keith Anderson AU - Chris Brooks TI - Extreme Returns From Extreme Value Stocks AID - 10.3905/joi.2007.681825 DP - 2007 Feb 28 TA - The Journal of Investing PG - 69--81 VI - 16 IP - 1 4099 - https://pm-research.com/content/16/1/69.short 4100 - https://pm-research.com/content/16/1/69.full AB - 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