3 Major investment styles:

  1. Active vs passive management

  2. Growth vs value investing

  3. Small cap vs large cap companies

Active vs Passive management style:

Actively managed funds typically have a full time staff of financial researchers and portfolio managers who are constantly seeking to gain larger returns for investors. Since investors must pay for the expertise of this staff, actively managed funds typically charge higher expenses than passively managed funds.

Active more expensive than passive. But studies have shown passive in the long run yield the same result as an active one

Passive – less risk, for people who are not as concerned for rapid growth. The growth of passively managed funds stems from the long-term increase in the value of their assets or from dividend or interest payments, not profit generated by frequent buying and selling of securities

Growth vs Value investing:

– Growth style looks at firms with:

  1. High earnings growth rates
  2. High return on equity
  3. High profit margins
  4. Low dividend yields

Idea is that if got all these, the firm is often an innovator in the field and making lots of money. Thus grows quickly, and reinvest to fuel continued growth in the future.

–Value style looks at buying strong firm at good price:

  1. Low PE ratio
  2. Low price to sales ratio
  3. Higher dividend yield

This style is very concerned about the price at which investors buy in.


Small Cap vs Large Cap companies:

Cap = market capitalization.

Market capitalization = number of shares the company has outstanding x price of its stock.

Large cap = large company = lower risk stocks (risk averse investors love these stocks) – GE, micrcosoft, Exxon Mobil.

These companies may be unable to grow as quickly, since they are already so large. However, they also aren’t likely to go out of business without warning. From large caps, investors can expect slightly lower returns than with small caps, but less risk, as well.
Small cap = smaller company = can expect them to grow quickly but comes with greater risk.



Definition under “Definitions”.

Two metrics that are important for tracking how heavily a stock has been sold short:

  1. Short interest – number of shares shorted / number of shares outstanding. i.e. 3% short interest = 3% of the outstanding share is held short.
  2. Short interest ratio (SIR)

A stock that has unusually high short interest and SIR may be at risk of a “short squeeze,” which may lead to an upward price spike.
When the short interest for a stock rises above 25%, it may be a warning sign that sentiment is growing negative on the company. Stocks with short interest above 40% are highly susceptible to potential short squeezes.

Buy side funds =

The whole point of a buy side fund is to create value for the firm or the firm’s clients by identifying and purchasing under-priced assets. Since large market movements can affect the price of a security, buy-side investing only works if the strategy is kept from the public.
P/E Ratio =

PE Ratio is used to determine how much investors are willing to pay for a stock relative to the company’s earnings




Compound Interest Formula:

Basically, concept of compound interest is that the interest is added back to the principle amount so that subsequent interest is earned on that amount added back as well, as opposed to just the principle amount if interest was not compounded.

The compound interest formula


**Do check out the above mentioned site if you want to calculate compound interest quickly, they provide a calculator on site**

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