Analysis Of Castlekeg's Low PE Strategy

Portfolio management is an important factor that determines the performance of the portfolio. To perform well in the portfolio, it is not only essential to develop personal investment strategies, but analyzing current financial trend is also vital. Stock Trak is an online portfolio simulation that allows students to try out different investment strategies, and also get a hand on experience in what the real market trading conditions are. By managing the portfolio, I have acquired some new knowledge of investment strategies and also become more familiar with the current market by following closely to the financial headlines.

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”

Our approach is an active security selection with passive asset allocation. We invest heavily in common stocks, but vary our holdings to include companies of all sizes and industry groups. We seek to achieve sufficient diversification by abstaining from investing more than 5% of the total assets in a single security unless it has significant upside potential, and we make an exception for ETFs and index funds as they represent a basket of securities. Our main goal is to identify and invest in common stocks with high potential for both short- and long-term capital appreciation. Our secondary goal is to invest in common stocks with steady income. When potential for rewards are high, we also enter into derivative

When analyzing the following strategies as a comparison, my finding results illustrate some similarities and some differences; however, these comparisons listed below:

Miller is an adherent of fundamental analysis, an approach to equity investing he had gleaned from a number of sources. Miller’s approach was research-intensive and highly concentrated. Nearly 50% of Value Trust’s assets were invested in just 10 large-capitalization companies. While most of Miller’s investments were value stocks, he was not averse to taking large positions in the stocks of growth companies. Overall, Miller’s style was eclectic and difficult to distill.

3.How these strategies are related the performance of these companies over time? Why? What is going on in terms of industry competition and markets that makes one strategy outperform the other at any point in time?

In 1974, the Employee Retirement Income Security Act (ERISA) was enacted as a federal law that establishes minimum standards for investment allocation in pension plans. After the establishment of ERISA, asset allocation and modern portfolio theory became standard practice because portfolio managers are required to be in compliance with the ERISA when they allocate investors’ capital in pension plans. In the existing academic literature, Del Guercio (1996) present large amount of evidence in his study that “Prudent-Man” regulations of US pension funds distorts portfolio choice towards high quality and less risky stocks.

“…anointing winners and losers on the basis of 12 months’ worth of performance is silly in the context of portfolios that are being managed with incredibly long time horizons.” — David F. Swensen, Chief Investment Officer, Yale University1

After analyzing the results from the previous quarter, it was determined that the prices set for each segment were not sufficient. Product sales priority were also not properly adjusted. With the R&D investments, sales priorities needed to be changed for the main focus to become the most profitable market segments. Prices were not competitive which in turned decreased revenue, market share, and profitability. To become more competitive we altered the prices in each market segment. The Workhorse product was the first to change, the price was lowered to $2500 in an attempt to increase sales; at this price Team 4 was still making a profit on this product, as well as making the price much more competitive. The Workhorse sales priority was also lowered to 3rd in Americas and 4th in APAC and EMEA. This product was not selling as well as we had hoped, and was no longer as profitable as it once was which led to this decision. Next, the Innovator product’s price was adjusted; this involved a price increase to $4100. This price was adjusted to include the new

Sanjun was tasked with developing a portfolio strategy based on our findings in the paper. As of date, he has delivered a quantitative portfolio that holds approximately 30 of 150 GIC Sub-Industries. Preliminary result suggests the performance can be significant. The team is excited to develop a strategy that is differentiated (higher tracking error & higher beta) from other quant portfolio currently being managed or tested.

Next, we examine that the impact of expected return factor overlay on the low risk phenomenon. In this paper, we chose two factors presented by Joel Greenblatt in his 2005 New York Times bestseller The Little Book That Beats the Market. The two factor overlay strategy is to favor securities that are cheap and return capital to shareholders. Greenblatt used earnings yield defined as Earnings before Interest and Tax (EBIT) or Operating Income divided by Enterprise Value to determine the cheapness of a security.

RA developed its “Fundamental Index (FI) methodology”, which supports the use of firm´s fundamentals rather than their current, often widely fluctuating market capitalizations, to establish portfolio weights in an index. The underlying assumption is that due to market inefficiencies and the resulting pricing errors, market-cap-weighted indices are flawed as they overweight overvalued companies while underweighting undervalued companies. Thus, the value proposition of RA is to create value by providing customers with superior economy-centric passive investment approaches that capture more accurately true long-term value.

Many scholars believe that certain strategies can be effective in “beating” the market over a long period of time due to the vast amount of empirical evidence. However, there is still a significant degree of uncertainty as to the effectiveness of one strategy over another amongst institutional investors and scholars alike. The vast majority of experienced investors believe that diversification, patience, and value are the three columns of successful investing. On the other hand, many researchers are still in disagreement about how viable other strategies such as growth,

P., Shen. (2000) showed the relationship between the P/E ratio and the stock market performance. It implied that the high P/E ratio would be the sign of  poor stock market performance, and the P/E ratio would fall back to the long-term average value, as the stocks’ prices falled  in the following years.