Investment management - Speech or Presentation Example

Price of growth stock is higher in ratio with its earning whereas the price of value stock is undervalued than based on strength of its fundamental. Hence, difference can be determined by the P/ E ratios. This can also be measured using the ratio of book value to market value. Growth firms’ BV/MV ratio is lower which refers high growth whereas value firms have higher BV/MV ratio. This ratio also receives impact from dividend paid by firms as growth firms pay less or no dividend and reinvest which provides investors with capital appreciation benefit.

Value stock pays higher dividend. Level of cost of equity and rate of return on assets which are component of DDM affects BV/MV ratio. Value stocks have high cost of equity which increases its ratio along with risk. Growth stocks have higher rate of return on assets and or/ high growth that lowers its ratio. Both stocks can be beneficial for investors based on their risk appetite and return needs. Investors looking for continuous stream of income shall be less diverted to growth stocks. Value stocks are invested inn in expectation of correction in their bargain price in future.

These ratios can also change with change in dividend strategy; increasing dividend decreases growth would get BV/ MV ratio increased or vice versa. Similarly, correction in price of value stock that increases its price would decrease its BV/MV ratio. Hence, these are time based measures defining investment strategies. A portfolio shall have both stocks in order to get benefit of diversification (Hagin, 2004). MLH company with beta of 0.5 and a dividend yield of 12% p.a. can be declared as value stock as it has higher dividend.

Beta of MLH Company determines its price receiving less movement momentum than overall market. Also beta is used in defining required rate of return assets which increases its numerator of DDM leading to relatively higher