Investment Philosophy Basic standards and beliefs guiding one's investing practices.

Factors influencing one's investment philosophy include risk tolerance, investment goals, and personal beliefs about what guides markets. Investment philosophies may vary widely from each other. For example, when investing in securities, one investor may use technical analysis, which utilizes statistical information exclusively, while another may use fundamental analysis, which uses both quantitative and qualitative information. It is also called an investment strategy. See also: Naive diversification, Markowitz Portfolio Theory. Defining STYLE INVESTMENT Investment style refers to The approach that investors, including professional money managers, take in selecting individual investments and assembling portfolios as they seek to achieve their investment goals. Most broadly, an investment style is a natural grouping of investment disciplines that has some predictive power in explaining the future dispersion of returns across portfolios. Its an approach, a mindset, or philosophy, under the influence of which investors frame their expectations and choose the means to achieve their investment objectives. A persons investment style is largely determined by factors like the level of risk tolerance that he posses, amount and type of available resources that he has at his disposal, time constraints, and the extent of one's freedom in choosing from the alternative means. The best example could be of a mutual fund that is solely focused on small-cap stocks might seek long-term capital appreciation by choosing aggressive growth stocks. Another small-cap fund with the same objective might build a portfolio of under priced value stocks. Evaluating a fund's investment style -- which is typically described as aggressive, moderate, conservative, or contrarian -- is an important consideration in choosing among mutual funds. Anyone would want to be sure of the fact that the fund that they are purchasing is compatible with their level of risk tolerance. It is important to be sure about what we mean when we say Style is an important consideration in a market. Some people might see Style as a way of describing the performance of a group of Stocks. Under these circumstances we have to be sure what a particle style is and that

the group underlying a particular style has unique feature, in that its performance is a distinct characteristic of the group (a distinct Identity); and it is also important factor that the member lying in that group remain consistent (Consistency). Many use Style as a way of describing the performance characteristics of their portfolios (Attribution), although it is very clearly related to Style Identity, but it is very worthwhile measuring independently as well. Finally the active managers try to rotate their Styles to anticipate and ride with Style reward trends; for them it is critical that these Style rewards follow reasonably regular and characterizable patterns (Regularity). . From here it is very clear that a style should have some conditions, below is the chart presenting some of the conditions for any style to be called a style.

Source: Style investment research associates limited, London

1. Identity To be certain of the fact that the patterns of rewards from particular style cannot be attributed to random portfolio selection. Identity is a result of Monte Carlo simulations. Can we be sure that the relative performance of the Style Factor portfolio is nothing more than could be generated by a randomly selected portfolio? Using Monte Carlo simulation techniques, we calculate an Identity statistic for each Style Factor. 2. Consistency it is a measure of the overall turnover of a particular style group. 3. Attribution while describing the performance of a portfolio, its important to measure the effectiveness of style configuration. Attribution is a measure of the effectiveness of each Style in explaining security and portfolio performance over the recent past. 4. Regularity Measures of the regularity of the short to medium term performance of the Style reward performance of the Style reward pattern. Regularity measures both the smoothness of each Style is performance pattern as well as its mean averting or mean reverting tendencies. This is particularly useful since cyclical mean averting patterns encourage tactical timing policies while longer term trending mean reverting patterns can be used to define medium term strategies. 5. Universality & Simplicity are obvious

Style Drift A major obstacle in investment planning as well as in risk control is the inconsistency in style which many professional investors view as Style Drift. For example if an investors wants to invest in growth stocks and his analyst rather invests on investors account, in value stocks, because it is currently best prevailing style in the market then the investor is not exposed to his desired risk. Whenever anyone stays away from their style and invests outside the boundaries of a particular style then a drift in style occurs. Historic Development on style Benjamin Graham and David Dodd first introduced "Value" investing in their groundbreaking book "Security Analysis" in 1934. They identified 3 basic criteria: Intrinsic Value; Future Value; and, Market Factors in their general enquiry.

Their intention was to show that there is more to shares than only speculation. Their focus was on company share value; and their ambition was to offer an analytical methodology capable of building a sensible foundation for investments and investment analysis following the disruption of the Crash and the Depression. On looking back we can see that their analysis included a healthy measure of respect for Growth criteria. But as we can generally expect, that did not stop their contributions from being over simplified, caricatured, and vehemently debated by a posturing opposition.

In 1939, five years later, T. Rowe Price Jnr, in "Picking Growth Stocks" (Barron's 1939) focused on "The Fallacy of Investing for High Current Income". The article caricatured Value stocks as mature (at maximum earnings) or even decadent (secular decline in earnings). They pay out earnings because they have to; and the best developments may be already behind them.

Growth stocks offer "favourable underlying long-term growth in earnings" and so can provide the only way to outrun the erosion of inflation. Techniques for Identifying Investment Styles There are two major approaches for identifying investment styles, these are 1. Return-Based Style analysis 2. Holding-Based Style analysis (Composition-Based Style analysis) An analyst can use either of the two techniques, the first technique to be introduced was, by Sharpe (1988, 1992), return-based style analysis in which the main focus is on the overall characteristics of the portfolio as realized by portfolios realized returns. The technique involves, regressing the portfolio returns on return series of set of securities indices.

The second approach, holding-based style analysis categorizes individual securities by their characteristics and aggregates results to reach conclusion about the overall style of portfolio. For that purpose following characteristics may be analyzed Valuation levels Forecasted EPS growth rate Earning Variability Industry sector weightings The main focus of our project is return-based style analysis, for that purpose we take ten years historic data and perform our analysis on returns basis. Equity Styles Some of the Equity styles, that we plan to pursue in our project, are as follows: 1. Value 2. Growth 3. Large-cap 4. Mid-cap 5. Small-cap 6. Liquid 7. Illiquid 8. large-cap-Value 9. Mid-cap-Value 10. Small-cap-Value 11. Large-cap-Growth 12. Mid-cap-Growth 13. Small-cap-Growth 14. Large-cap-Liquid/Illiquid 15. Mid-cap- Liquid/Illiquid

16. Small-cap- Liquid/Illiquid Apart from these there are other common styles that investors adopt in the market they are Market-Oriented (immediate grouping of intermediate group that cant clearly be categorized as either value or growth). Indexing

Style Box Today style box is the most significant technique of looking at styles. Initially style box contained only six boxes, based on style like growth, value and among large-cap, mid-cap and small-cap. Later on a newer version by Morningstar became known because of firms use of 3*3 style box. The following Morningstar style box divides a fund portfolio or stock universe by market cap, and style (growth, core and value) making total of nine boxes. He used holdings-based style analysis and categorizes one-third of its universe as growth, one-third as core and finally the remaining one-third as value.

GROWTH INVESTMENT STYLE This investment style is focused on investing in high-growth companies. Investors are more concerned with the future earnings of the company. The underlying assumption about the earnings is that Earnings: - if a company can deliver future growth in earnings per share (EPS) and its price-to-earnings (PE ratio) doesnt decline, then its price will appreciate at least at the rate of EPS growth. Some of the indicators for the growth investment style are as follows:1. High sales growth relative to overall market 2. High price-to-earnings ratio 3. High price-to-sales ratio 4. Dividend payout is usually low 5. Good investment projects 6. Long-term earnings growth rate 7. Short term forward earnings-per-share growth rate 8. Current internal growth rate 9. Long-term historical earnings growth rate 10. Long-term historical sales growth rate There are two types of growth investment styles 1. Consistent growth 2. Earning momentum Consistent growth In this type of growth investment style, companies usually have following features:1. Long history of unit sales growth 2. Superior profitability 3. Predictable earnings 4. High price-to-earnings 5. Leaders in consumer-oriented Earning Momentum In earning momentum style, the companies with following features fall:-

1. High quarterly year-over-year growth in earnings-per-share i.e. earnings-per-share in 2005's first quarter was some percentage, the earnings-per-share in the first quarter of 2006 would show a large increase as compared to 2005s first quarter.) 2. High potential of earnings growth rate as compared to consistent growth style. 3. Premium price

References http://financial-dictionary.thefreedictionary.com/Investment+Style http://www.investorwords.com/7363/investment_style.html#ixzz1KcNJN mY0 Style Investment Management Robert Schwob Style Investment Research Associates Limited http://www.styleresearch.com/PDFfiles/StyleInvestment.pdf

Dynamic Style Preferences of Individual Investors and Stock Returns Alok Kumar June 2009 http://www.mccombs.utexas.edu/faculty/alok.kumar/KumarStyleInvJFQA.pdf Investment Categorization Exeter fiduciary consulting www.medicalbusinessadvisors.com/asset%20management6.doc

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Returns Based Style Groups and Benchmarking Dr Andrew Mason ,Dr Frank J. McGroarty &Prof Stephen Thomas DEC 2010 http://www.cass.city.ac.uk/__data/assets/pdf_file/0011/69941/Returns_Ba sed_Style_Groups_and_Benchmarking.pdf