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Stingy Investor Tip Sheet

Low PB Heat Maps

I've been investigating the return history of stocks with low price to book value ratios and you can read about some of my musings in two articles that were recently published in the Globe and Mail:

+ A time-honoured investing theory collides with new facts
+ When diving for value goes too far

After reading those articles, you might think that the case for low-P/B investing is grim. I don't think it is. But it isn't perfect.

During these investigations I created four heat maps that you might find interesting. These are big grids with each cell showing the annual return generated between a starting year and an ending year. The cells are coloured to highlight particularly good - or bad - periods.

One map shows the returns of stocks in the lowest P/B decile (10) and a second those of stocks in the second lowest decile (9).

The next two maps show the decile returns minus the returns of the largest 30% of stocks. The largest 30% of stocks roughly follow the market's returns and should be reasonably similar to the returns of the S&P500. These are basically outperformance / underperformance maps.

In all cases the returns are based on data from professor Kenneth French and are based on value weighted indexes where large stocks matter more than small stocks. This, hopefully, largely removes the influence of microcap stocks on the figures.

Consider the maps as raw research materials rather than a polished publication. But they should be of interest to data hounds.

The heat maps are linked below ...

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2/24/2012   10:30 PM EST   Permlink   save & shareValue Investing

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Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...