Bob Haugen spent his career studying what pays off in the market and why. One of his studies, titled
Case Closed
which evaluated U.S. Stock performance between 1963 and 2007, validated his contention that the market is inefficient.
The study showed that throughout the entire period, the characteristics of stocks
in the top performing 10% (Decile 10) are the mirror image of the lowest expected
return stocks in Decile 1.
The highest expected return stocks consistently demonstrate this surprising profile:
- Low risk
- Highly profitable companies
- Improving profitability
- Large capitalization
- High liquidity
- Inexpensive stock price relative to earnings, dividends and cash
flow