CASE ANALYSIS: GMO: THE VALUE VERSUS GROWTH DILEMMA

Submitted to: Mr. Sabin Bikram Pant, Course Instructor: Investment Management, Kathmandu University School of Management

Submitted by: Group 4 Manita Pokharel (12324) Murary Prasad Roy (12325) Nikkey Shrestha (12330) Shivshankar Yadav (12336) MBA, Term-IV February 25, 2013

Case Analysis: GMO: The Value versus Growth Dilemma Synopsis

Investment is a widely discussed topic around the world and investors are guided by various philosophies and investing styles. The case has discussed the benefits and risks associated with both value and growth investing styles along with several challenges being faced by Dick Mayo, (one of the founding partners and portfolio manager of GMO) in analyzing whether the value investing strategy used at GMO has been able to prove a better strategy for the investors or not. The trend that was emerging in the particular economy, i.e. popularity of growth investing strategy (price appreciation) and outperformance of growth stocks compared to value stocks, was puzzling Mayo about market and investors behavior. In this context, Mayo along with the decision making team have also analyzed some value investment stocks like CVS, Donnelly, and Manor for further investment prospective. With the value investing style that Mayo has been focusing for the company, there is a concern whether continuation of same investment style as considered by Mayo can generate relative benefits for the investors in that particular situation. This case analyzes the merits and demerits of value and growth investing styles and relates to the situation of Mayo in determining the investors perception about the companys investment strategy.

Key Issues
Dick Mayo has been facing a sensitive issue that is of concern for most of the stockholders. Since the focus of the company has been investment in value stocks that have been mispriced and that can provide benefits in the long term, Mayo is worried about the trend that has been arising in the economy. The emerging popularity of the companys price appreciation in investors decision making had raised some serious questions regarding the investment consideration in terms of value investors. The major issue that has been explained in this case is Can value investing still be a better strategy in this changing economy? And how can the investors are convinced about benefits of a particular investment style matching to their needs rather than deciding their investment based on the market trends?

1. Value vs. Growth Investing: Differences (Merits/Demerits and Superiority)

The tremendous investment concepts and theories generated over years have been able to distinguish various investment styles based on the strategies applied. Investment styles provide investors with a vast number of approaches that may or may not fit their criteria. Two of the most popular investment styles: Value Investing and Growth Investing have been discussed over years, and decide which style is correct; yet is a matter of study over time. Value investing considers buying stocks that are undervalued, but the value investment can provide with benefits only if the company selected is financially sound and the stock mispriced (undervalued) is based on temporary market inefficiencies. Growth investing are considered for investment if the trend shows that they are providing with above market rates of earnings growth, but they also carry the risk of the stock performance below expectation of investors. The value and growth investment style mainly differs in the way in which they are perceived by the market and ultimately, the investors. Both investment styles seek for maximizing the returns by seeking the lower priced stocks either underpriced in compared to intrinsic value or expected high returns through growth of the company. Beside this, the given two investment styles can be distinguished on following grounds:

Basis Focus of the investors

Investment Philosophy

Value Investment Style Growth Investment Style Finding an outstanding Finding a company with high company at a sensible price growth prospects with a willingness to pay premium price. Value investors focuses on the price (P) of the stock at the Investors focus more on earning of expense of the earning (E) the company rather than the price incurred to acquire the stock. Emphasize on less tangible characteristics such as sustainable competitive advantages of the selected company Identify the undervalued stock Buy a stock no matter what its with an optimistic view to price is at market and sell it for market correction more prices.

Investment Risk

At bear market, prices of stocks might fall dip further with the market slump; at bull market that appeared overvalued at one time, the prices might rocket further along with the market. Difficult to identify the right market timing i.e. to find the price of company to buy and the timing of selling Evaluation of stocks as good value is misread

High probability of losing money in short period of time.

The market downturn hit growth stocks far harder than value stocks. For instance, the growth investors lack the fundamental basis of reasoning their investments thus herd mentality can influence the investor psychology which drive them towards risk of huge price swings. Future growth does not occur as expected Growth stocks deals with the highquality, successful companies whose earnings are expected to continue growing at an average rate relative to the market. Growth stocks may be seen as expensive and over-valued

Nature of stocks

Typical Features

Strategy

Value stocks are considered to be undervalued by the market. Traded at a lower price relative to their fundamentals or say trading at a discount to intrinsic value Investors purchases value stocks in the hope that they will increase in value when the Low current price-to-earnings ratios Low price-to-book ratios Higher dividend yield Low P/E strategy: focus on defensive, cyclical and out-offavor industry groups Contrarian Strategy interested in stocks with low valuations relative to book value Yield Strategy purchases the stock of firms with aboveaverage dividend yields that are expected to maintain or increase their dividend
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High price-to-earnings(P/E) ratios High price-to-book ratios Pay lower or no dividends and focus on the capital appreciation Consistent Growth Strategy follows high quality firms with continually growing earnings Earnings Momentum Strategy Purchases the stock that display accelerated earnings growth in the near future.

Business Lifecycle

Value investors consider the The growth companies are merely mature companies or at the early stage of the companys companies in slow-growth business cycle or have huge and companies that paid potential to emerge in the market. dividends to shareholders

Neither value nor growth guarantees appreciation in stock market value because of the investment risk associated with each. The superiority of any approach depends upon the nature of the investors, market conditions or economic cycle, investment risk, etc. Both approaches have their own merits and demerits. For instance, Value manager may fall into the value trap believing that the market has overreacted but what if that is not the actual scenario or manager fail to identify the correct intrinsic price due to biases in picking out the calculating elements such as earning of the company. Whereas the growth strategy may not perform as expected if the company fails to materialize the expected growth. In order to minimize the risk associated with each investment style, the investors can look for holding both value and growth stocks since the growth and value investments is highly correlated, so holding both investment styles offers no significant diversification benefits i.e. no risk leads to no return.

2. Is Value Investing Wrong Strategy in the New Economy?

From the case it can be analyzed that the time period that considered the issue was relatively strong economy compared to the periods of economic downturns. As given in the case, the new U.S. economy was strong with less significant inflationary effects, low unemployment, increasing productivity. The influence of internet and technology was slowly observed even in the investment environment. This was leading to investors focus on price appreciation on investments rather than the earnings growth. Value investing can be a difficult approach for the investors, because the analysis of intrinsic value can be done through use of different approaches. Since, during the new economic condition, the value stocks have shown less performance than expected, it can create a doubt among investors on whether the value investing strategy can provide benefits in the coming time period. The earlier periods showed a distinct pattern on performance of value and growth stocks. But, the trend had been disturbed. The investors not just passively waited for long term value of stocks, but were rather interested in the stocks that could provide capital returns much sooner. This signifies whether the value investing strategy sustain in long run in the midst of the ever changing environment. As in the exhibit 4, the cumulative return of BARRA S&P 500 Growth/ Value Indices vs. the S&P 500, the value investment (BARRA Value) was raising high since January 1975 than other investment styles i.e. growth investment style (BARRA Growth) and indexing investment styles(S&P 500). After the 1997, the trend reversed and Growth investment indices rose higher than other indices, the reason could be change in the investors perspective towards the new economy, arrival of new technology and long term growth prospects of the companies, emergence of globalization and its inevitable impact over the competitive periphery of the companies, change in investors preference for risk return trade off, etc. This shows how the growth investment styles has outperformed over the value investors with change in pace of time. Similarly, the exhibit 1, Capital appreciation of major indices, shows that indexing investment styles i.e. S&P 500 index and NASDAQ Composite index have outperformed the value investment style i.e. Russell 1000 Value in both two year and one year index capital appreciation. The lower capital appreciation would lower confidence in the investors.
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Analyzing the return from the different investment styles in the exhibit 2, Total Returns of Certain GMO U.S. Active Funds and Relevant Indices, the return from GMO value investing lays below the given indexing investment styles. As per the case, the 5 years return of GMO Pelican Fund is lowest i.e. 15.57 in comparison to the NASDAQ 100 composite i.e. 41.61%. This signifies how the use of automated technology can assure NASDAQ to outperform other indices in the market. From the analysis of the Exhibit 1, 2, and 4; the trend shows that with the change in economy pace the investment styles too change. So, the superiority of any investment styles whether value, growth, momentum and indexing are highly influenced by the external factors such as economic cycle, change in technology, inflation level, customers confidence level, availability of the information, accuracy of the fundamental analysis, etc. Thus, any investment style by itself may not be right or wrong, but the proper strategies in investing and generating returns at correct time is very crucial for the decision makers.

3. Why wouldnt GMO include Cisco System, an otherwise excellent company, in its portfolio at this time? Why is it willing to consider CVS or RR Donnelley? What are the long term expected returns for those stocks?
Calculation for Stock undervalued/ overvalued identification : In 2000 Cisco CVS R.R Donnelley Current price PS Book value per share EPS PS LT growth Rate Treasury bond rate Yield on AAA rated bond 132.06 5.01 1.17 30 Given Federal Reserve Economic DataLink: http://research.stlouisfed.org/fr ed2 Calculation Price/ book Vale 26.36 2.96 2.08 1.31 6.1 7.04 28 9.46 1.8 17 6.1 7.04 19.38 9.3 2.45 12 6.1 7.04 Manor Care 12.56 9.58 1.28 15 6.1 7.04

Price/ earnings

112.87

15.56

7.91

9.81

Price for standard

69.44

66.29

68.99

42.70

Expected LT rate of return on stocks

9.2 Given

(0.23 (1+.17))/28+ 0.17= 17.9%

(0.88 (1+.12))/28+ 0.12= 17.08%

15% same as growth rate

Decisions basis

Decision criteria for value investors

1. PBV ratio

lower is the best

Overvalued

undervalued

Undervalued

Undervalu ed

2. PE ratio

Lower is the best

Overvalued

undervalued

Undervalued

Undervalu ed

3. Graham's method

If the stock traded at less than

overvalued

undervalued (28<66.29)

undervalued (19.38<69.99 )

undervalu ed (12.56<42. 7)

calculated price, buy the stock. (132.06 > 69.44)

4. Expected LT rate of return on stocks

Higher the better

Overvalued

undervalued

Undervalued

Undervalu e

Calculation of long term Real rate of return to the current shareholders

Years 1999/2000 (0) 2000/01 (1) 2001/02 (2) 2002/03 (3) 2003/04 (4) 2004/05 (5) 2005/06 (6) 2006/07 (7) 2008/08 (8) 2008/09 (9) 2009/10 (10) IRR -Current 30 yrs T-bond yield -inflation rate estimate Real return to current share holders Cisco(cash flow) -132.06 0 0 0 0 0 0 0 0 0 318.82 9.21% 6.1% 2.0% 1.1% CVS(cash flow) -28 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 134.82 17.45% 6.1% 2.0% 9.35% RR(cash flow) -19.38 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 61.071 14.94% 6.1% 2.0% 6.84% Manor care(cash flow) -12.56 0 0 0 0 0 0 0 0 0 50.812 15.00% 6.1% 2.0% 6.9%

Note: we assume growth in price is same as LT earnings growth rate in future as assumed by GMO analysts in exhibit: 5 to calculate future market value (i.e. in 2009/10)

Analysis: From the various calculations, now we can analyze that why GMO did not include Cisco system in its portfolio rather than CVS, and Donnelley. 1. Price/ Book value (Book Value Multiples) From the given information we have calculated PBV ratio. Where, the book value of equity measures what accountants consider to be the value of equity in a company, and the market value of equity is what investors attach as a value to the same equity. PBV ratio shows price of share in market as compare to the value of share in balance sheet. Investors have used the relationship between price and book value in a number of investment strategies, ranging from the simple to the sophisticated. In this case, PBV ration of Cisco system has 26.36 that is more than others, means investors were paying more than what accountant considers its value so as a value investor it is not a better choice but the CVS corporation, RR Donnelley and Manor Care are. In other words Cisco is overvalued in market whereas CVS and RR are undervalued. These lower PBV ratio compelled value investors to invest in these stocks in a belief that their market price may increase in future. So, on the basis of PBV ratio we support his choice of CVS Corporation and RR Donnelley than Cisco system. But, sometimes it may not be good basis for decision making because low PBV ratio may operate as a measure of risk, since firms with prices well below book value are more likely to be more risky, financial trouble and go out of business. So we need more calculation to justify this decision. 2. P/E ratio: Investors have long argued that stocks with low price earnings ratios are more likely to be undervalued and earn excess returns in future. We have also used this ratio two compare these stocks. P/E ratio of Cisco system in 2002 as calculated above is 112.87 and 30 times in 2009 which is much more than others. The value investor believes that the stocks with low priceearnings ratio are undervalued and so there may be increase in price of such stocks in future so, CVS and RR are preferable than Cisco on the basis of P/E ratio.
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Although P/E ratio was the first of Ben Grahams ten screens for undervalued stocks there are some pitfalls of this tools that can mislead us. If earnings are high not because of a firms operating efficiency but because of one-time items such as gains from divestiture or questionable items such as income from pension funds, this may lead to lower P/E ratio but not ensure future returns from that stock. 3. Grahams pricing method: Ben Graham a success investment value investor had used
( )

formula to

calculate price and compare with current market price of stocks to ensure overvalued and undervalued of the stocks. If calculated price is higher than traded price, value investor would buy the stock. The calculated price of Cisco system is 69.44 which is lower than current market price i.e. 132.06 so we suggest not to invest in this stock. Meanwhile, calculated price of CVS and RR Donnelley and Manor care are 69.29, 68.99 and 42.70 which are higher than current market price of these stocks i.e. 28, 19.38 and 12.56 respectively. So, on the basis of Grahams pricing method Cisco is overvalued but others are undervalued. 4. Expected long term rate of return on stocks: This is another method to evaluate if the stocks are undervalued/ overvalued. This gives same result as Present value (PV). Higher the rate of return lower will be the present value which implies that the stocks having higher expected return are undervalued and so it may give higher return in future. Thus, on the basis of this criterion, Cisco systems stock is overvalued where as CVS, RR and Manor care are undervalued so its better to buy these stocks than Cisco. 5. Real rate of return (Implied adjusted IRR): The above all four decision making criteria help to identify which stock is undervalued or overvalued, and then to select the undervalued stocks. But this tool helps to understand how much real return does each stocks will provide in future if they sell at intrinsic value. In this calculation we first calculate 2009th years implied market value per share of each stock assuming that growth in price is same as long term growth rate.

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The result shows that even growth rate of Cisco system (30%) is higher than others whereas its real rate of return is much lower than each of above firms. From calculation, the real return to current shareholders for long term from Cisco system is only 1.1% but the same from CVS, RR and Manor care are be 9.35%, 6.84% and 6.9% respectively. So, as value investor, GMO did not select Cisco, although, it had higher growth rate because of two reasons: 1. Cisco is overvalued (illustrated by the above four tools) where as others are undervalued and, 2. The long term expected real rate of return from Cisco system is much lower than others (illustrated by tool 5).

4. Should GMO change its strategy now that the world has seemingly turned against it? Would you invest with GMO? Why? Why not?
GMO was established as an institutional investor that used a fundamental bottoms-up approach and focused on out-of-favor companies (perceived to trade at less than intrinsic value) that was less preferred by most investors in the market. With the inclusion of international investment and development of quantitative investment techniques, GMO was able to establish a unique identity as a value investor. The value investment strategy of GMO seemed to be providing with positive values during the period of the 1980s to early 1990s. Outperforming the S&P Index on an annualized basis by around 2%, the company grabbed the opportunities through value investing in that time period. Although most of the time, the passive screening through use of certain financial calculations, basically the Price to Earnings, Price to Book, Price to Sales and GMOs proprietary dividend discount model are used for the analysis of stocks performance, some active strategy have also been under consideration, for e.g. in the case of Storage Tek, Mayo identified opportunity if management team could be restructured and focus could be made on the competitive advantages of the company.

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The strategy used by the GMO being a value investing focuses on the fundamentals and intrinsic value of the investments. Following extensively value investing style can be problematic if following pitfalls of the value investment are ignored: Value Trap The common hazard that reduces the expected return from the value investment is value trap which occur when the hidden value that investors think they can see in a company fails to materialize. The reasons could be poor management, low return on company assets or default risk, etc. For instance, in 2005-2007, the investors failing to ask about the companys debt covenants faced major decline in the value of the stock due to increased default risk after the reduction of credit lines in 2008. The Perils of the P/E Ratio Depending upon P/E ratio for making investment decision may lead to nowhere because simply low P/E return does not guarantee a good return. The low growth prospects or (temporarily) low tax charges, manipulation in earning, etc. can the result behind low P/E thus the reason behind P/E ratio should matter most rather than the degree of the ratio. Market Timing One of the major considerations is sell the stock with right market timing. But most of the investors fails to identify the market timing and often falls in trap such as Selling before boom and Buying before the crash. Thus, the investor fails to grasp the optimum benefit due to wrong market timing despite having wonderful portfolio. Behavioral Finance The psychological factors often influence the investment decision of the investors. Lack of trust on own fundamental analysis and instincts, lack of proper information, following the rumors in the market and responding to them, etc. would not let the investors to materialize its investment philosophy.

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Based on the above factors and change in environmental factors, some aspects that need consideration under the investment strategy are given below: The risks associated with the investments in the particular stocks can be analyzed properly. Since, the risk is linked with returns for the portfolio managing companies, the degree of volatility in the fundamentals and performance of price in relation to book and earning values over years can be considered. GMO can also consider the use of new technologies and internet to improve the processes of evaluation of the investment market. New perspective of value investing can be considered to bring improvements in the decision making process. The GMO should focus on use of variety of different valuation tools apart from the P/E ratio. Encouraging the investors for avoiding any kind of behavioral biases through proper counseling.

As risk adverse investors, if GMO considers above recommendations it would be fair enough to go with its strategy. But with pace of time, the investor should not totally rely on the value investment style because of some investment risk associated with it. Thus, the investor can go for diversification benefit i.e. going for blend of the investment styles by adopting strategy flexible enough to counter the challenge placed by the emerging economy and other related factors.

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5. What kind of stock (value or growth) has potential for long term gain in Nepali stock market? Why?
The general investors of Nepal do not perform fundamental analysis of the company rather they generally invest on the basis of crowd psychology or whim. The major concern for the investor while investing is, stock price rather than earnings. The majority of the players in the stock market rely on the benefit of the short-term capital gain rather than the dividends and bonus. Also, there are few big players, who buy share in bulk and they can make significant impact upon the share price of the company by excessive buying or selling, thus decreasing the efficiency of the stock market. Generally, Nepalese investors buy the undervalued stocks and sell them if they see any rise in the stock price to get the capital gain. Though the investors do not perform any fundamental analysis and calculate P/E ratios of the company but unknowingly they invest in the stocks having low price (low P/E ratio). The investors assume that the earnings of the company will not significantly decrease over the time. This goes well with the theory which tells that, Any fund that invested in stocks with low price earnings ratios, relative to the market, is categorized as a value fund. Looking from this angle we can say that, Nepalese investors prefer value investing strategy over the growth strategy. However, if we see the index points gathered by the NEPSE during the last one year (2012), it implies that Nepalese investors also prefer growth investing strategy. NEPSE index has seen over 539 points in 2013 however, we cannot say at present it is bulls market. A bull market is one in which prices of a certain group of securities are rising or are expected to rise. After the quality performance in 2012 where NEPSE crossed 400 points, we can say the current stock market is in transformation phase. In other words we can say that, Nepal stock market is on the way to bullish market. Thus, stock price of many companies which were undervalued and below the intrinsic price will move up and equate the intrinsic price or rise well above the intrinsic price. Looking from this angle, one can say that its perfect time for

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implementing the growth investing strategy, which says that, Growth investing required a degree of faith that company would eventually deliver on the implicit promise of additional economic value through the above-average growth. Thus, the general investor see the future growth prospects of NEPSE and the companies listed in the NEPSE and hence they invest in shares of those companies which has growth prospects to take advantage of this growing phase. However, this is only the single side of the coin and other side must not be ignored. As we can see that the political consensus is yet to see the dawn and if the consensus does not happen in the near future then stock market might see the downfall. Such negative outcome might go against the growth investing strategy (in growth investing strategy investor choose the company having growth prospects and rely on the implicit promise of additional economic value through aboveaverage growth). Let us evaluate types of stock (i.e. value investing or growth investing) preferred by the investor in Standard Charted Bank and Nepal SBI. For Standard Charted Bank, Nepal The average trading price in the stock market during 2009-10, 2010-11, and 2011-12 were NRs. 3625, NRs 1962 and NRs. 1585 respectively. During the year 2009-10, 2010-11, and 2011-12, the P/E ratio was found out to be 42.23, 25.9 and 24.78 respectively. During these three years, we can clearly see that when the P/E ratio was high (i.e. 42.23 during 2009-10), the average stock price was also very high (NRs. 3625 during 2009-10) and when the P/E ratio was low (i.e. 24.78 during 2011-12), the average stock price was also very low. This goes well with the theory of growth investing strategy, where investor focuses on high P/E ratio. It is also to be noted that market has correctly identified the efficiency of Standard Charted Bank, Nepal and also mostly rational investor invest in blue-chip bank like Standard Chartered. (Note: Information regarding P/E ratio and average stock price of bank is given in Annex1) For Nepal SBI The average trading price in the stock market during 2009-10, 2010-11, and 2011-12 was found out to be NRs.1102, NRs 610 and NRs. 519 respectively whereas, the P/E ratio was found out to be 31.28, 22.73 and 27.69 respectively. Unlike the Standard Charted Bank, Nepal SBI bank stock price was not directly proportional to the P/E ratio. For example: when average the stock price
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was highest (NRS. 1102) the P/E was also highest, which suggest that investors are growth seekers. But in 2010-11, when the P/E ratio was low (as compared to 09-10 and 11-12) the average stock price was high. Also, the average stock price was only NRs. 519 when P/E ratio was comparatively high. Here, its very difficult to identify the types of stock (value investing or growth investing) as the market has not behaved rationally. The market is yet to identify the efficiency of Nepal SBI. Thus, in this case we cannot say implicitly whether the investors are following the value investing strategy or growth investing strategy. (Note: Information regarding P/E ratio and average stock price of the bank is given in Annex1). Similarly if we evaluate most of the companies of Nepal and their fundamentals we cannot find same trend of correlation between the P/E and stock price of the company. This unusual relationship between the P/E and stock price indicates that, we cant explicitly find out which strategy the investor of Nepalese market is following. Thus, if warren buffet and Benjamin graham who were well known for value investing, were to decide investing in NEPSE, they also have to think twice before taking any strategy to invest in Nepal. Because Nepalese market is not following any particular pattern and most of the investor do not do any fundamental analysis of the company before investing. Thus, we cannot say that only a particular type of strategy (value investing and growth investment) the Nepalese investors preferred. So after analyzing these trends and market

situation, we recommend the mixed approach that takes into account, both types of investment strategies. One can choose the stocks from secondary market that have low P/E, high P/B, high EPS, good dividend yield and have growth prospects as well. The accumulation of pros from each of the strategy (values investment and growth investment strategy) and reduction of as many of the cons as possible will be the optimum solutions. So, in Nepal although, in current scenario the mix of both value and growth investing strategy seems beneficial for long term gain growth investing in firms like Standard chartered and Value investing in firms like SBI bank may be appropriate.

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Conclusion
The presence of complex investment environment makes the decision making on the investment style a difficult process. With the emergence of various advanced technologies; quantitative and qualitative basis of analysis; etc. different investment styles have been emphasized by scholars and analysts. Among the most widely used concepts, value investing and growth investing are discussed and compared by supporters of those concepts. The value investment style focuses on the buying firms that have been mispriced and have potential to be corrected in future. On the other side, the growth investment is concerned with the stocks that have been showing above average growth than the market. The concept seems contrast but each of those investment styles is unique. As discussed in this case, the value investing that has been the distinct feature of GMO has made it successful in the market. The growth investments are growing popular, yet there is always a good prospect for value investment as well. The growth investment is done through assumption that market is efficient, but the market efficiency is more of idealistic concept. In the market where efficiency drives some investors, some are encouraged by the concept that there are inefficiencies in the market and so it leads to information gap which results in some undervalued stocks too. The investment strategy should be flexible enough to accommodate the changing environment demand without violating its investment philosophy. So, the use of any strategy can bring good returns if the analysis is done in a more scientific way. The expected result can be achieved through use of any particular investment only if the factors such as market timing, behavioral biases, proper analysis of the available information using variant financial tools, investors confidence level, economic factors like inflation rate, employment, GDP, etc. are considered while making investment decisions. In context of Nepal, the level of information correctness is a matter to consider. Also, market situation, trends are needed to evaluate where mix of both strategies may be appropriate.

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Lessons Learnt
The selection of an investment style is a complex process and requires proper analysis of various factors among which the return and risk expectation of investors is the foremost one. Since, every investment style has its own unique benefits and risks, some important lessons learnt from the case analysis are as following: Investment style in itself is not the key to success in a complex investment environment. Depending upon various factors like the nature of returns/gains expected, business lifecycle, etc. the investment strategies can be decided and implemented so that investors can be benefitted. With change in economy, one investment style selected may outperform the other investment style. Sometimes change can be useful, but following the market trend without proper analysis may not always ensure shareholders wealth maximization.

Limitations
Although the case has been analyzed through various studies related to investing styles, there are certain limitations too: The different investment styles have been successfully used by various analysts during different time period. So, deciding one investment style as right and the other as wrong can be vague. The information on the various investment styles show varied interpretations, so the merits and demerits of any particular style can be distinct which may not be related with the other investment style.

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Annex 1

Bank

P/E Ratio 09-10 10-11 25.90 11-12 24.78

Share Price 09-10 Max 10-11 Max 11-12 Max 2876 Rs.2019 and Min Min Rs.1319

SCB Nepal

42.23

Rs 6500 and Rs. Min 3479 and 2060 Nepal SBI 31.28 22.73 27.69 Max Rs 1779 and

Max 1905 Max Rs Rs 764 and 556 Min and Min 401

Min Rs 556

1. Quarterly report of Nepal SBI(2009-10)

Average stock price= NRs. 1102

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2. Quarterly report of Nepal SBI (2010-11)

Average Stock price (2010-11) = NRs. 610

3. Quarterly report of Nepal SBI( 2011-12)

Average stock price (2011-12) = NRs. 519

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4. Quarterly report of SCB, Nepal (2009-10) Quarter (Months) First Quarter Second quarter Third quarter Fourth quarter Maximum Share Price 6500 3770 3,333 3,470 Minimum Share Price 3,680 3,251 2,799 2,403

Average Stock price= NRs. 3625 5. Quarterly report of SCB, Nepal (2010-11) Quarter (Months) First Quarter Second quarter Third quarter Fourth quarter Maximum Share Price 2,876 2,233 2,070 1836 Minimum Share Price 2,060 1,819 1521 1280

Average Stock price= NRs. 1962

6. Quarterly report of SCB, Nepal (2011-2012) Quarter (Months) First Quarter Second quarter Third quarter Fourth quarter Maximum Share Price 1,319 1,601 1,455 2,215 Minimum Share Price 1,470 1,290 1,302 1,479

Average Stock price= NRs.1585

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References
http://winninginvestor.quickanddirtytips.com/what-is-value-investing.aspx http://www.fool.com/investing/value/2010/01/14/is-value-investing-dead.aspx http://www.dows.com/Publications/growth_versus_value_investing.htm http://www.capatcolumbia.com/essays/value%20vs%20growth.pdf http://americancenturyblog.com/2011/01/key-success-factors-for-value-investing/ http://www.bdfwealth.com/Growth-Stocks-vs--Value-Stocks.c1022.html http://www.jpmorgan.com/tss/General/Investment_Style/1159369368373 https://www.unience.com/blog/secuoya23/five_pitfalls_for_value_investors

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