What Has Worked In Investing

Tweedy, Browne, a value-oriented investment firm with a history going back to the 1920s and a connection to Benjamin Graham, assembled this compilation of academic and practitioner studies on what characteristics have preceded superior stock returns.

The studies are summarised rather than reproduced, and the compilation organises them by characteristic. The categories include low price relative to book value, low price relative to earnings, low price relative to cash flow, high dividend yield, small market capitalisation, low price relative to historical high, insider purchases, share repurchases, and the combination of several of these. For each the firm summarises the studies, the periods and markets covered, and the measured return differences between the cheapest and most expensive groups.

The compilation is a marketing document for a firm that manages money on these principles, which readers should note. It is also useful precisely because it assembles in one place a body of evidence that is otherwise scattered across journals. Its limitation is that it presents studies without engaging the criticisms, particularly the arguments that the value premium reflects risk rather than mispricing, that data mining across many characteristics produces apparent effects, and that several of the documented premia have weakened substantially since the studies were conducted. It should be read as a bibliography with summaries rather than as an argument.