Ever since Ben Graham and David Dodd published Security Analysis in 1934 and founded fundamental analysis, stocks have typically been categorized as Value or Growth. I am not ignoring other terms such as Core, Blend, Deep Value, Absolute Value, Relative Value, GARP or Momentum, but those derivations are much more difficult to quantify and mean different things to different investors. So, for the sake of simplicity and clarity, I have always focused on Value and Growth and finding ways to make those two definitions more relevant.

When I set out to build Hedgefolios, I wanted to use terms most advisors and investors were familiar with. However, I also wanted to bring my own perspective to the site and have unique terminology that would create meaningful standards that could be used to build and manage portfolios. The greatest example of this comes in the form of Hedgefolios’ style definitions.

I have always been critical of defining a stock as either Value or Growth without being able to provide an additional (and quantifiable) measure of the degree to which they were one or the other. When you look at the Russell and S&P/Barra Style Indices, you’ll see that stocks have an “either or” definition of Value or Growth. Here’s where my concern comes in - consider two stocks on a spectrum, one called Value and the other Growth. The Value stock has fundamental measures that place it just to the left of the Value vs. Growth threshold (say the 49.99th percentile) and the Growth stock is just to the right of the threshold (say the 50.01st percentile.) While the stocks are relatively the same, they obtain two different definitions and yet, stocks that are much further apart on the spectrum (but on the same side of the threshold) have the same definition. The Hedgefolios methodology for determining each stock’s Style was constructed to address this issue and provide more detailed choices. As a result, Hedgefolios offers Eight Degrees of Separation within the Value/Growth spectrum.

At the far left of the Hedgefolios spectrum and in sequence moving to the right, the definitions are:
High Value, Mid Value, Low Value, Value Blend, Growth Blend, Low Growth, Mid Growth, High Growth.
When you use the Evaluate Section of Hedgefolios to identify stocks that meet your Style criteria, you can focus on the traditional terms of either Value or Growth. If you select Value, you will receive all stocks in the Hedgefolios universe that were High Value, Mid Value, Low Value or Value Blend. If you would like to refine that search and drill down deeper, you can select one of the 4 subcategories of Value and only receive those stocks. The same can be done for Growth Stocks. Furthermore, if you are interested in stocks that show fundamental measures of both Value and Growth, you can select Blend. Within blend, you have 2 subcategories, Value Blend and Growth Blend, as these are stocks that are near the Value / Growth threshold but have a slight bias towards one or the other discipline.

As I have mentioned in the post entitled “It’s Fundamental”, Hedgefolios uses a multivariate and standardized analysis of 6 fundamental measures to create a score for each stock that is then compared to all the other stocks in the universe. These composite fundamental scores are then placed within one of the eight subcategories of percentile ranges along the Value / Growth spectrum.