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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.
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.
3.
Relative-value managers _______.
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Buy stocks trading below their historical price ratios, their industry peers, or the market. Relative-value managers measure a stock's value by comparing its price ratios with some benchmark.
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.
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.