@article {Anderson69, author = {Keith Anderson and Chris Brooks}, title = {Extreme Returns From Extreme Value Stocks}, volume = {16}, number = {1}, pages = {69--81}, year = {2007}, doi = {10.3905/joi.2007.681825}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Investigations into value-based {\textquoteleft}anomalies{\textquoteright} 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}, issn = {1068-0896}, URL = {https://joi.pm-research.com/content/16/1/69}, eprint = {https://joi.pm-research.com/content/16/1/69.full.pdf}, journal = {The Journal of Investing} }