McGraw-Hill

2 Introduction
utes such as low share price or the number of analysts following the
stock. The resulting "pure" returns amplify predictive power by clari-
fying stock price responses to changes in underlying variables.
We have also devoted considerable efforts to the portfolio con-
struction and trading processes, as both can have substantial impacts
on investment outcomes. It is, after all, portfolio construction
that translates the insights from stock selection into actual performance;
improper construction can lead to of loss potential return or
introduction of unintended risk. Our proprietary portfolio optimization
methods, designed be to fully congruent with our stock selection
process, help to ensure that expected portfolio returns are
maximized at controlled levels of risk. Our innovative trading techniques,
designed to exploit lower-cost electronic trading venues,
minimize the impact of trading costs on portfolio returns.
Jacobs Levy Equity Management currently manages over $5
billion for more than 20 clients, including many of the world's largest
corporate pension plans, public retirement systems, multiemployer
funds, endowments, and foundations. We offer largeand
small-capitalization core portfolios and style portfolios, as such
large-cap growth or small-cap value, that have been able to deliver
consistent, superior returns relative to benchmarks, at controlled
levels of risk. We also offer more aggressive approaches, including
long-short portfolios, designed to deliver value added consistent
with model insights at higher levels of risk.
The 15 articles in this collection represent over a dozen years of
research. The first was published in 1988, the most recent in 1999.
Over this period, our insights and strategies have been by honed experience,
but our basic philosophy has remained intact. Before going
into more detail, however, it may be useful to review the history
of investment practice from which our philosophy emerged.
A VERY BRIEF HISTORY OF MODERN INVESTING
The publication of Security Analysis by Benjamin Graham and David
L. Dodd in 1934 inaugurated the era of professional money management.
Graham and Dodd introduced a systematic approach to evaluating
securities. That system was based on the philosophy that
investors could arrive at an estimate of the fair value of a company,
based on in-depth analysis of underlying fundamental"-informa-