Style Investing

Value strategies are a category of investment philosophy that is adopted by investment legends such as Warren Buffett. This approach to value investing can be traced back to Benjamin Graham and his filters to find undervalued stocks. In recent years, these filters have been refined and extended. The following section summarizes the empirical evidence that backs up each of these filters.

The Generic definition: An investor who buys growth companies where the value of growth potential is being underestimated. In other words, both value and growth investors want to buy undervalued stocks. The difference lies mostly in where they think they can find these bargains and what they view as their strengths. We also included the small size effect in this growth category.

Market timing includes a group of strategies using information from the trading activities to deduce a buy-sell direction. The information includes return, volume and volatility information and the strategy includes the most famous momentum strategy. The strategies described in this category are closest to technical analysis.

Return patterns have been documented when sorting accounting related variables such as profitability and investment. Investors make two types of mistakes that make future return predictable . On the one hand, they overreact to specific accounting information such as investment growth. On the other hand, they underreact to other accounting information such as profitability.