Do trailing 12 months (TTM) or average ratios – also called normalized ratios – give you higher returns? This is what I wanted to find out by looking at all the research I could find. [timeless] How Magical Is The Magic Formula? What we found In our book Quantitative Value Investing in Europe: What Works for Achieving Alpha we tested 168 investment strategies in Europe over the 12 year period from June 1999 to June 2011 we also tested trailing 12 months and normalized ratios (5 year average) – the results surprised us. The normalized ratios we tested were: Earnings…
On This Page
- What we found
- Earnings Yield vs Normalized Earnings Yield
- Free cash flow yield vs Normalized free cash flow yield
- Return on Invested Capital vs Normalized Return on Invested Capital
- Summarised results
- What others have found
- Magic Formula normalized vs. 12 month
- The long term Magic Formula
- What they found – long term does not add much value
- Are normalized Price to Earnings (PE) ratios better than trailing 12 months?
- What they tested and how they did it
- This is what they found
- Using more years of earnings do add value – but only from year 6 to 8
- Are five different normalized ratios better than trailing 12 months?
- 5 strategies tested over 40 years
- What they found
- Summary and Conclusion
- Quantitative Value Investing in Europe
- Magic score: Long-Term vs. Short-Term
- The Long-Term Price-Earnings Ratio
- A Performance Horse-Race over the past 40 Years
- So a very long story short
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