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Funds 401: Shades of Value

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1.
If a stock is 'fairly valued,' what does that mean?
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The stock is no longer cheap by whatever benchmark the manager uses. The other answers might apply to relative-value managers or absolute-value managers, who would use either relative or absolute benchmarks.
2.
Relative-value managers measure a stock's value by comparing its price ratios with _______.
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A benchmark. These managers use a benchmark of some kind for comparison purposes.
3.
Managers practicing absolute-value strategies calculate what a company is worth in absolute terms and then _______.
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Buy the stock for less than that. Value investing is all about paying less than what the stock is intrinsically worth.
4.
Given that value fund managers seek to buy stocks for less than they are intrinsically worth, we should expect their funds to have fairly similar earnings patterns.
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False. Value fund managers define value in different ways. That results in strategies that can sometimes have wildly differing performances.
5.
Value fund managers buy stocks that they believe are undervalued, _______.
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But they also define value in different ways. And partly because they define value in different ways, they tend to use differing strategies when choosing stocks.