Chapter 6-Equities Flashcards
A firm’s book value
is often compared to the firm’s ___ value/market ___. If a company’s ___ is trading below its book value, it is often considered ___
Stock; capitalization; stock; undervalued
FORMULA: A firm’s assets - its liabilities=book value
Generally growth funds have much ___ P/E ratios & higher price to book ratios than ___ funds.
Higher; value
Growth fund managers look for stocks that they expect to see earnings and revenue increases of ____
15%-20% annually.
Value investors search for firms ___ by the market with ___ P/E and ___ price to book ratios and maybe high ___.
Value investors tend to be more ___ and ____ investors.
Ignored; low; low; dividend yields
Contrarian; long-term
Value managers tend to do best during ___ when a bull market is ____.
Growth stocks tend to lead ____ markets and suffer when the economy ____
Peaks; running out of steam
Bull; starts to slow down
Growth At a Reasonable Price (GARP) is a blend of ___ and ___ investing.
This is a variant of the ___ approach and can lead to ___ long-term returns according to many academic studies.
Growth & value
Low P/E; superior
Micro cap stocks represent _% of US equities.
The ___ has ___ stocks with median market capitalization of ___.
3;
Russell Microcap Index; 1,800; $272 million
Small corporations have a ___ business focus than larger corporations.
Small corps focus on ___ interrelated products or services.
Management often has more ___, ___, & ___ to be creative and innovative.
Narrower; 1 or a few;
Freedom, flexibility, & financial incentive (often because of owning large share of company)
Although __ funds typically are less volatile than growth funds, they lost as much or more than growth funds in the following recent economic downturns.
Cyclicals’ and financials’ decline of __
Utilities debacle of __
Asian crisis of ___
The ___ meltdown
Value
1990
1994
1998
2008
Momentum-driven managers
Try to buy stock before it’s positive earnings announcement AND sell that stock before it misses analysts’ earnings estimates or has bad news go public
Earnings-momentum managers pay ___ to the price of the stock.
Earnings-momentum managers try to identify companies with ___ and catching ___ in stocks already showing gains.
Most investors have a hard time ____
Little attention;
accelerated earnings;upswings
Sticking with earnings-momentum funds thru rough stretches
Moderate earnings/growth-oriented managers seek___
___ growth strategies work best when investors are concerned about economic weakness.
Stocks growing in a slow steady fashion, especially blue chip stocks.
Blue chip
Top-down managers look 1st __then make their market assumptions & forecasts.
Bottom-up managers look first at ___, then the ___, then the ___, then ___ factors.
Bottom-up managers are more likely to believe money can be made __
Economic conditions and trends;
Individual securities, sector, country, economic;
In any economic environment
Virtually all fund managers use a ___.
___ proponents study charts for patterns they think will repeat. A tiny percentage of private money managers & investors use __. There are ___ verifying the legitimacy or benefit of ____.
Fundamental approach
Technical analysis
Technical analysis
No studies; Technical analysis
Qualitative analysis evaluates what cannot be precisely measured like _____.
Management experience, character and talent
A future value table with the sum to which $1 per annum will increase paid at the end of the year is used whenever …
This computation does not factor in the ___.
1) the same amount of money can be saved each year; 2) rate of return is positive and the same for each year.
Inflation rate.
A future value table with the subheading “the sum to which $1 principal will increase” is used whenever you have…
1) a specific lump sum
AND
2) a positive rate of return
A present value table is used wherever you have both …
This table can illustrate the effects of ___ & ___ over anywhere from 1-40 years.
1) a lump sum
2) a negative rate of return
Inflation; income
