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Unit 9: Portfolio Management




          Sustainability through Worst                                                          Notes

          We have demonstrated a superior investment strategy. Looking forward, our strategy should
          yield superior  results while  limiting risk  for long-term  investors in  almost any  economic
          environment short of unlimited nuclear war or total global economic collapse.
          Whether you are playing tennis, flying fighters, or practicing medicine, you should be constantly
          looking for the highest probability shot. The combination of Strategic Global Asset Allocation
          and Modern Portfolio Theory (with an appreciation of the cross-section of expected returns in
          various parts of the world's markets) offers investors the highest probability shot of making
          their objectives a reality.

          9.7 Value Investing

          This style of investing termed as conservative investing. In the case of value investing, bargains
          are often measured in terms of market prices  that are below the estimated current economic
          value of tangible and intangible assets. Value investors pick up shares at attractive low prices.
          They are characterised by maintaining a portfolio of market under-performers, equipment, or
          other financial holdings in subsidiaries or other companies, and real estate. Value investors,
          who select only cheap shares that are very infrequently traded, are called deep-value investors.
          Some value investors focus on companies at the brink of bankruptcy or in the midst of bankruptcy
          proceedings. The value investors' portfolio will have shares that have been undervalued by the
          market. Such value investing is suitable in a market economy that is facing depression. Most
          value investors' focus on tangible assets such as plant. Cyclical shares also become a favourite
          with value investors when recession hits and economically sensitive shares get undue importance
          due to short-term investors focussing on temporarily adverse sales and earnings information.

          9.8 Growth Investing

          The strategy of growth investors is to identify the shares whose future returns are expected to
          grow at a fast rate. Growth investment style identifies shares based on the growth potential of
          companies. These types of investors look into the future potential returns from the company.
          Historical returns need not exhibit a close relationship with growth rate or historical earnings
          per share.
          Growth investors consider several factors to identify superior performing securities for purchase.
          Some of the factors that are looked into are short run and long run high growth rates from sales
          and EPS, high profit margin and notable increase in projected earnings for both three and five
          years. Growth companies are also identified through comparison with industry averages. If the
          company  has superior expected growth rates  compared  with  the industry averages,  such
          companies  are considered as growth companies. Growth  shares also  show distinctive cost
          advantage over other companies and are marked by high pay scales to attract talented employees.
          It is not always possible to identify the growth shares in  all capital market situations. Many
          situations might arise, which would make the identification of growth shares very difficult.




              Task       Analyse what would happen to the investor if the identified growth shares
                         change their characteristics. Give reasons to support your argument.










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