Style Investing: Unique Insight Into Equity Management

by Richard Bernstein

Headed by Bernstein, the quantitative equity and equity derivatives strategies group at Merrill Lynch is noted for their proprietary research on market segmentation and style investing. In this book, he highlights the macroeconomic, microeconomic and expectational factors that can affect equity market segment performance. The first section focuses on the definition and identification of market segments and reviews the major equity market segments that concern today's institutional investors. Part two analyzes the historical result of each segment of style strategy within the context of the economic and expectational framework. Lastly, it describes current issues and problems in equity markets and their implications for pension plan sponsors.

Genres: Finance

256 pages, Hardcover

First published May 29, 1995

About the author

Richard Paul Bernstein was an American journalist, columnist, and author. He wrote the Letter from America column for the International Herald Tribune. He was a book critic at The New York Times and a foreign correspondent for both Time magazine and The New York Times in Europe and Asia.

Reviews

[Terry · Rating 5 out of 5]

Classic book on style investing. Plenty of great insights.

1. Almost all kinds of equity investing styles can be classified into two groups - safe or risky. For example, growth (safe) vs value (risky), large (safe) vs small (risky), high-quality (safe) vs low-quality (risky), dividend yield (safe) vs high duration (risky) and low beta (safe) vs high beta (risky).

2. Equity market buys and sells “nominal earnings growth”.

3. Risky styles outperform when economic growth is accelerating and interest rates rising (value, small, low-quality, high-duration and high beta). Vice versa.

4. Earnings Expectations Life Cycle: every stock goes through a cycle of: Neglect - contrarians - positive surprises - positive surprises models - estimate revisions - eps momentum - growth - earning torpedoed - negative surprises models - estimate revisions - dogs - neglect.

5. Both good value and growth managers are contrarians. Good value managers are contrarian buyers (buys when everyone hates the stock at the extreme). Good growth managers are contrarian sellers (sells when everyone loves the stock at the extreme). Bad value managers are the ones that buy the stock too early and has to suffer first before the stock works. Bad growth managers are the ones that sell the stock too late after it has fallen.

A must-read for any investors. Even though every investor claims to have a style for the long term, every investment style has to experience long period of underperformance due to economic conditions. This is very important to understand and be prepared for.

[Karen Zhang · Rating 3 out of 5]

I find this book a bit outdated as most of the research data was only available through 1990, not even the 21st century. The author explained very clearly why some styles outperformed others due to some macro-economic factors. I think it's good for pension planners to have this kind of knowledge. But if one is seeking investing wisdom and investing principles, it's not the right book for you.

[Alessandro Orlandi · Rating 5 out of 5]

Really really interesting book based on data.

[Terry Grennon · Rating 4 out of 5]

Bernstein provides some great detail on when to invest in growth vs value. This read was instrumental in the development of a style investing approach when I was a co-portfolio manager.

[Pyoungsung Choi · Rating 4 out of 5]

한 편의 논문같은 글이다. 자본시장과 투자전략을 스타일과 세그먼트로 구분하고 시장 국면별 세그먼트들의 성과를 추적한 글이다. 결론적으로 역발상을 정량적으로 검증할 수 있는 내용이 되었다. 하이 퀄리티 기업보다 로우 퀄리티 기업들이, 성장주보다 가치주가 장기 성과가 좋은 것으로 드러난다. 그리고 인덱스는 위험 대비 상대성과가 형편없다. 기간이 길면 길수록 더욱 그러하다.