Investment style, is a term in

investment management Investment management (sometimes referred to more generally as financial asset management) is the professional asset management of various Security (finance), securities, including shareholdings, Bond (finance), bonds, and other assets, such as r ...

(and more generally, in

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

), referring to how a characteristic investment philosophy is employed by an

investor An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of pr ...

or fund manager. Investment Philosophies

Aswath Damodaran Aswath Damodaran (born 24 September 1957), is an Indian-American Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education). He is well known as the author of several widely used ac ...

Here, for example, one manager favors small cap stocks, while another prefers large blue-chip stocks. The classification extends across

asset classes In finance, an asset class is a group of marketable financial assets that have similar financial characteristics and behave similarly in the marketplace. These instruments can be distinguished as either having to do with real assets or having ...

—

equities Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion t ...

, bonds or

financial derivative In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements: # an item (the "underlier") that can or must be bou ...

s — and within each further weighs factors such as leverage,

momentum In Newtonian mechanics, momentum (: momenta or momentums; more specifically linear momentum or translational momentum) is the product of the mass and velocity of an object. It is a vector quantity, possessing a magnitude and a direction. ...

, diversification benefits, relative value or growth prospects. Major style choices include the following: *Active vs. Passive: Active investors believe in their ability to outperform the overall market by picking stocks they believe may perform well. Passive investors, on the other hand, feel that simply investing in a market index fund may produce potentially higher long-term results (pointing out that the majority of

mutual fund A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...

s underperform market indexes). Active investors feel that a less

efficient market The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis ...

(prices inhering all news, and hence potential) should favor active stock selection: for example, smaller companies are not followed as closely as larger blue-chip firms, and may then trade at a discount to true value. The core-/satellite concept combines a passive style in an efficient market and an active style in less efficient markets. *Growth vs. Value: Active investors can be divided into growth and value seekers. Proponents of growth seek companies they expect (on average) to increase earnings by 15% to 25%. Value investors look for bargains — cheap stocks that are often out of favor, such as cyclical stocks that are at the low end of their

business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...

. A value investor is primarily attracted by asset-oriented stocks with low prices compared to underlying

book A book is a structured presentation of recorded information, primarily verbal and graphical, through a medium. Originally physical, electronic books and audiobooks are now existent. Physical books are objects that contain printed material, ...

, replacement, or

liquidation value Liquidation value is the likely price of an asset when it is allowed insufficient time to sell on the open market, thereby reducing its exposure to potential buyers. Liquidation value is typically lower than fair market value. Unlike cash or other a ...

s. These two styles may offer a diversification effect: returns on growth stocks and value stocks are not highly correlated, thus by diversifying between growth and value, investors may reduce risk and still enjoy long-term return potential. *Small Cap vs. Large Cap: Some investors use the size of a company as the basis for investing. Studies of stock returns going back to 1925 have suggested that "smaller is better," and on average, the highest returns have come from stocks with the lowest

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...

, the so-called "

Size premium The size premium is the historical tendency for the stocks of firms with smaller market capitalizations to outperform the stocks of firms with larger market capitalizations. It is one of the factors in the Fama–French three-factor model.

". At the same time, small-cap stocks have higher price volatility, which translates into higher risk. (Also, there have been long periods when large-cap stocks have outperformed.) Some investors then choose the middle ground and invest in mid-cap stocks seeking a tradeoff between volatility and return. Mutual Fund Investment Styles

AXA Axa S.A. is a French multinational insurance corporation headquartered in the 8th arrondissement of Paris. It also provides investment management and other financial services via its subsidiaries. As of 2024, it is the fourth largest financi ...

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{{DEFAULTSORT:Investment Style Investment Investment management Stock market

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References