Below are two alternative strategies under consideration by an investment fi rm:Strategy A : Invest in stocks that are components of a global equity index, have aROE above the median ROE of all stocks in the index, and have a P/E less thanthe median P/E.Strategy B : Invest in stocks that are components of a broad-based US equity index,have a ratio of price to operating cash fl ow in the lowest quartile of companies inthe index, and have shown increases in sales for at least the past three years.Both strategies were developed with the use of back-testing.1 . How would you characterize the two strategies?2 . What concerns might you have about using such strategies?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Below are two alternative strategies under consideration by an investment fi rm:
Strategy A : Invest in stocks that are components of a global equity index, have a
ROE above the median ROE of all stocks in the index, and have a P/E less than
the median P/E.
Strategy B : Invest in stocks that are components of a broad-based US equity index,
have a ratio of price to operating cash fl ow in the lowest quartile of companies in
the index, and have shown increases in sales for at least the past three years.
Both strategies were developed with the use of back-testing.
1 . How would you characterize the two strategies?
2 . What concerns might you have about using such strategies?

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