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Funds 401: Shades of Value

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1.
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.
2.
A value fund manager may sell a value stock once its price reaches some benchmark.
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True. To be fairly valued means to reach a benchmark of some kind.
3.
Which statement is true?
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Absolute value funds require patience because management's concentrated style can lead to ups and downs in the short term. Absolute-value managers can calculate a company's worth in a variety of ways. They also tend to have lumpy performance due to their style, and require patience of fund investors.
4.
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.
5.
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.