Beat the Market With Low P/E Stocks
Countless studies over the decades have put to rest one of Wall Street’s most prevalent myths… yet it still lives on to this day.
You’ve heard it before. It’s the whole “you can’t beat the market” ploy.
It’s the same one that’s gotten investors around the world to fork over their hard-earned cash to do-little money managers who collect fees for delivering mediocre returns.
Why haven’t we learned?
At the very least, this myth should have died in the late 1990s when James O’Shaughnessy published his classic research on the success of various investing strategies.
It was published at a time when most folks still relied on a broker or advisor to make investment decisions. O’Shaughnessy made the case that ordinary investors could use even the simplest strategies to beat the market on their own.
And not only beat it… but do so consistently.
It’s a premise we strongly agree with here at The Oxford Club.
Take one popular strategy still in use today: investing in stocks with low price-to-earnings (P/E) ratios.
The P/E ratio tells us what investors are willing to pay for a stock based on its current earnings. It’s calculated by dividing a stock’s price by its earnings per share.
It’s a favorite among value investors looking for a good bargain. (And a metric many of us often look to when evaluating a potential investment.)
We’ve run our own back test to show just how well low P/E stocks have performed against the broader market.
Taking the 50 lowest P/E stocks in the S&P 500 Index – and rebalancing each quarter – we’re able to show that from 1992 to 2016, an investment of $10,000 would have grown to $210,467.
That’s a staggering 2,005% return.
However, investing the same $10,000 into the S&P 500 would have produced a much smaller $91,770…
In other words, these low P/E stocks handily beat their more expensive peers.
Breaking the Spell
Upon its release in the late ’90s, O’Shaughnessy’s research smacked conventional wisdom in the face.
It was further proof that what we were doing at The Oxford Club – founded long before O’Shaughnessy published his research – resonated with people.
For nearly 30 years, we’ve been helping everyday investors overcome the “curse of mediocrity”… using both time-tested and proprietary strategies that are proven to create lasting wealth.
For example, Chief Trends Strategist Matthew Carr says that P/E is “at the heart of the VIPER System,” the stock-grading system he uses to find his next big investment opportunities.
In fact, his system has handed his readers nine triple-digit winners – for up to a 514% gain – so far in 2019.
With gains like these, we’re happily chipping away at the Wall Street myth. But even after many decades at work, Wall Street’s spell over the average investor has yet to be broken.
It’s as though the truth just can’t get out there.
And with a nonstop flood of financial news telling ordinary investors they can’t win, is it any surprise? Beating the market is not easy, mind you… but it is possible.
It’s a matter of sticking to what works and having discipline during difficult times.
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