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Chapter 12. Are You in Style?

Once an investor wades through the potential problems with fund names and determines the class of mutual fund shares he or she wishes to own, there is still the issue of investment style, a prominent feature in today's mutual fund world. Investors should build their portfolios based on sensible asset allocations, and to do this they typically consider the mutual fund's style.

In the 1980s, institutional investors started classifying money managers according to their investing style. The two major styles are value and growth, terms that continue in popular use today. Value stocks are stocks that are trading at prices thought to be below their economic value. This often means that these stocks have low price-to-earnings ratios and low price-to-book values. Growth stocks are stocks that are thought to have above-average prospects for earnings growth. Such stocks often have high price-to-earnings ratios and high price-to-book value ratios.


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