Stocks for the Long Run : the Definitive Guide to Financial Market Returns and Long-term Investment Strategies

9

CHAPTER

OUTPERFORMING THE MARKET

The Importance of Size,

Dividend Yields, and

Price-to-Earnings Ratios

Security analysis cannot presume to lay down general rules as to the

“proper value” of any given common stock.... The prices of common

stocks are not carefully thought out computations, but the resultants

of a welter of human reactions.

BENJAMINGRAHAM ANDDAV I DDODD, 1940^1

STOCKS THAT OUTPERFORM THE MARKET

What criteria can investors use to choose stocks with superior returns

that will outperform the market? Earnings, dividends, cash flows, book

values, capitalization, and past performance, among others, have been

put forward as important factors for investors to consider.

139

(^1) Benjamin Graham and David Dodd, “Price Earnings Ratios for Common Stocks,” Security Analy-
sis, 2d ed., New York: McGraw-Hill, 1940, p. 530.
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