Investors not only beat the stock market by investing in small companies with low market-to-book ratios, they beat it by a huge margin, according to Brad Barber, professor of finance at the UC Davis Graduate School of Management. This observation has gained increased attention in the finance community since the publication of research by Eugene Fama and Ken French at the University of Chicago. Barber and John Lyon, a professor of accounting at UC Davis, are developing standard methods for evaluating long-run investment performance that control the relation between firm size, market-to-book ratios and common stock returns. These methods can be used to answer such questions as does it makes sense to invest in firms that go public? Or, does it makes sense to invest in firms that are repurchasing their shares? "The key ingredient to success is investing in a company with a low market-to-book ratio," says Barber. "Market-to-book ratios reflect a firm's market value of equity relative to its book value of equity." Barber's advice is to invest in a well-diversified portfolio of stocks with this characteristic.