From: "5se Investment Research" <webmaster@5se.com>
Date: Thu, 12 Nov 1998 22:25:30 -0800 (PST)
To: unlisted-recipients:; (no To-header on input)
Subject: Long Term Returns: Value vs. Growth
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Dear Fellow Investor,

Recently two professors from the University of Chicago, Eugene Fama and Ken
French, published a study demonstrating the difference in long term returns
of value and
growth stocks. The study encompassed almost all stocks on every major US
exchange.

This celebrated study presented overwhelming evidence that market forces
tend to overreact to past events, pricing growth stocks too high, and value
stocks too low. Because of these reactions, as a group, growth stocks
produce below average returns for investors who purchase them at high
prices, and value stocks produce above average returns for investors who
purchase them at depressed prices.

The professors used book to market value to correlate the long term returns.
Value stocks having high book to market value and Growth stocks identified
by a low book to market value.

On average the stocks fitting the value criteria had average annual returns
of 21.4% while growth stocks had only 8% average annual returns. Factoring
in inflation, the real long term rate of return for value stocks is a bit
over 15% but only 2.5% for the growth group.

Essentially the study is a good reminder that, when it comes to investing,
what goes around comes around. Good companies can experience bad times and
be unfairly priced. Apple, IBM, Coke, American Express, and many other
excellent companies have experienced the wrath of an unforgiving market, and
yet, they are companies with a proven ability to persist in the face of
large challenges.

Identifying value is simple. All you have to do is look for Good companies
experiencing temporary difficulties. This simple strategy will, if you are
willing to wait out the storm, reward you with hefty long term returns and
lower risk (as the F&F study also showed).

Stocks that meet the F&F criteria for value and have solid management in
todays market include:

Callaway Golf
Ensco Corp
Reebok
Advanta Corp

To learn more about the F&F study read Robert Haugen's book "The New
Finance" available at

http://www.5se.com/5se1.htm


Regards,

Jeffrey Minich
5se Investment Research

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