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It is the intercept of the security characteristic line SCL , that is, the coefficient of the constant in a market model regression. It can be shown that in an efficient market , the expected value of the alpha coefficient is zero. Therefore, the alpha coefficient indicates how an investment has performed after accounting for the risk it involved:.

Alpha (finance)

In this context, because returns are being compared with the theoretical return of CAPM and not to a market index, it would be more accurate to use the term of Jensen's alpha. A belief in efficient markets spawned the creation of market capitalization weighted index funds that seek to replicate the performance of investing in an entire market in the weights that each of the equity securities comprises in the overall market.

In fact, to many investors, [ citation needed ] this phenomenon created a new standard of performance that must be matched: an investment manager should not only avoid losing money for the client and should make a certain amount of money, but in fact should make more money than the passive strategy of investing in everything equally since this strategy appeared to be statistically more likely to be successful than the strategy of any one investment manager. The name for the additional return above the expected return of the beta adjusted return of the market is called "Alpha".

Value invest learn India - Top down V/S Bottom up Investing - Indian stocks basics - Stock Market

Besides an investment manager simply making more money than a passive strategy, there is another issue: although the strategy of investing in every stock appeared to perform better than 75 percent of investment managers see index fund , the price of the stock market as a whole fluctuates up and down, and could be on a downward decline for many years before returning to its previous price. The passive strategy appeared to generate the market-beating return over periods of 10 years or more. This strategy may be risky for those who feel they might need to withdraw their money before a year holding period, for example.

Thus investment managers who employ a strategy which is less likely to lose money in a particular year are often chosen by those investors who feel that they might need to withdraw their money sooner. Investors can use both alpha and beta to judge a manager's performance. If the manager has had a high alpha, but also a high beta, investors might not find that acceptable, because of the chance they might have to withdraw their money when the investment is doing poorly. From Wikipedia, the free encyclopedia.

For other uses, see Alpha disambiguation. But such an environment is most conducive for committing mistakes, unless proper discipline is maintained.

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Navigating the current market We are trying to drown out the market noise and stick to our core approach of looking at fundamentally strong companies with potential to create value over the longer term. Investing theme for the next years Implementation of GST would be quite transformational for the country with far reaching implication for many businesses.

Consumer-oriented firms in the organised sector should do well in the next years. Also, given the decimation the pharma companies have seen, value has started emerging here and the sector should generate wealth over years. Over the past year, Jain has retained a preference for sectors with a higher play on the domestic economy. She has veered towards large-caps in her multicap fund, which often takes a highly concentrated exposure in its top bets.

The outsized positions in individual stocks show an aggressive approach.


  1. Introduction.
  2. 4.2 Demand and Supply in Financial Markets!
  3. A Phenomenology of Landscape: Places, Paths and Monuments (Explorations in Anthropology).

Jain says its largely a function of the upside potential in the market. Despite the aggressive tilt, Jain has managed to protect downside much better than many peers over the past five years. We continue to focus on identifying stocks and sectors which have structural growth prospects and are trading at reasonable valuations. Investing theme for the next years We are overweight on the banking sector.

Our focus is to identify banks with a strong franchise that will benefit from the growth recovery. Improvement in the asset quality scenario and growth from lending opportunities in both the corporate and retail segments are key drivers for the banking stocks that we hold. Structural reforms in the sector—bankruptcy code and a proactive regulatory regime—gives us conviction. He focuses on company fundamentals in a comprehensive bottom-up research.

He prefers not to be tied down to the bench mark index. He insists that investing approach needs to be fluid as what worked for the past 10 years cannot work for the next decade. Power shift is happening from producer-driven economies to consumer-driven economies while good promoter driven companies are transitioning into professional-driven companies.

Navigating the current market We will continue to pick companies with strong managements in great businesses. We prefer to buy companies with consistency in earnings and hold stocks for a longer term. While investing we try to avoid companies that have excessive business uncertainty. Investing themes for the next years We are focusing on solution-oriented companies which have the requisite experience to launch the right product at the right time.

Investors still willing to buy

We feel cheaper energy costs—solar power—travel and tourism because of government initiatives like Incredible India, Swachh Bharat Abhiyan, etc. Krishnakumar firmly believes that style integrity is critical for a fund manager. He points out that while companies with significant balance sheet issues have been clearly left behind, businesses with sustainable models and clean balance sheets with visible growth drivers have continued to appreciate in value.

To this effect, Krishnakumar has chosen to stay away from capital guzzling businesses while those with efficient capital allocation practices feature prominently in his funds. Also, while he is comfortable straying from the underlying benchmark index to pick stocks with better earnings profile, he has kept the exposure in his top bets moderate to contain the downside risk inherent to the mid-cap space. Navigating the current market One should not get carried away by outperformance of certain poor quality businesses, even though there could be performance pressure, as it could prove detrimental when the tide turns.

Disciplined investing is bound to provide adequate and good returns. Investing themes for the next years Rising agricultural incomes and improved rural prosperity is a key theme. Growth driver in many consumer products could shift to the rural side. Electric vehicles and surrounding eco system is another disruptive theme. Companies showing an ability to scale up, while maintaining sound capital allocation policies remain the bedrock of his approach.


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Given the risk-reward scenario, the focus around finding new stocks has shifted somewhat to gauging the downside possibility rather than stressing on the upside potential. Tibrewal argues that in the event of an earnings disappointment in a quality business, the possibility of a time correction in its share price is much higher than a sharp correction.

Tibrewal has also selectively opted for strong franchises which have not seen their share price budge much, and where he reckons an earnings surprise can lead to a sharp rebound. He has made a conscious effort at diversifying the fund portfolios to avoid taking a big hit on account of a few bad apples.

Philosophy

Minimise mistakes and reducing downside. Stay focused on good companies. Navigating the current market Disciplined investment approach. Investing in quality, capital-efficient and scalable businesses offering sustainable growth, run by passionate people and available at a reasonable price. Financial services: GDP to double in the next years. Will boost private sector banks, insurance firms, etc. Cement: Producers to benefit from better pricing power.

But he has stuck to his guns, waiting for the right opportunities to emerge and has not given into the pressure of deploying the money flowing into his funds. Having started off by building positions in the tech space, where the risk-reward appeared more favourable, Singh later waded into the beaten-down pharma sector where he felt the market had over-reacted to some setbacks.

Value investing in a heady market brings with it bouts of underperformance, but Singh can be trusted to adapt without having to dilute his unique style. Navigating the current market As a value investor, the best way to navigate a market is by investing in companies which offer relatively high margin of safety and keeping away from value traps.

Investing themes for the next years Value investing is one theme we believe can play out for a patient investor over the next five years. When it comes to sectors, we are overweight on information technology IT.

Select companies are likely to benefit from the ongoing digital disruption in IT. All investments involve risks, including possible loss of principal.

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Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in fast-growing industries like the technology sector which historically has been volatile could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.

The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments. The opinions are intended solely to provide insight into how securities are analyzed.

The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process.

Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results. This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.

It does not constitute legal or tax advice.