Endnotes
1. Two extensive studies of stock performance over the long
term establish the truth about PE ratio. A study by David
Dremen included 1,200 stocks between 1968 and 1977. Dur-
ing that period, annual returns averaged 7.89% among the
lowest PE stocks and only 0.33% among the highest PE
stocks. A second study, conducted in 1977 by Sanjoy Basu,
included 500 NYSE stocks; the Basu study confirmed
Dremen’s earlier findings.
2. Reuters, “Polaroid Files for Bankruptcy Protection,” October
12, 2001.
62
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