Beta Management Company Case Report
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Table of Contents
I.Case background 2
II.Sarah Wolfe 2
III.Background of California R.E.I.T. and Brown Group, Inc. 3
IV.Return and risk 4
V.Summarize in bullet points what you learn from your case analysis. 7
I. Case background
Who: Sarah Wolfe who is the founder and also the CEO of Beta Management Company
Where: Small investment companies near a suburb of Boston
When: The Beta Management Group was formed in 1988. Up to 1991, high-net-worth individual clients totaling $25 million in assets were under control by the Beta Management Group.
What: She ...view middle of the document...
Technical analysis would not be applied to add values because everyone knew the model of technical analysis. So the most efficient fundamental methods to add value are to research the market by observing the economy cycle. To well understanding the market demand and supply relationship inside the market would effectively show the current market trends.
The new strategy was stock picking strategy. In fact to maximize the returns and minimize the risk by jumping out the price the index tracking to. Sarah needs to picking some small stocks that easier to find the price trends. Therefore, her portfolio risk would be eliminated and the performance would be improved.
She is a contrarian investor. She invested during the economy downturn with lower price and selling them on top of the market after the economy recovered after September 1990, it can lead to above-average gains. For example, the company was successful in 1990 by reducing the equity position to 50% in June. After September they began moving money back into the index fund. By January 4, 1991 Beta Management had 79.2% of $25 million invested in the Vanguard fund; she has actually made money for her clients.
The main difference between California R.E.I.T. and Brown Group are that the California R.E.I.T. had portfolio well diversified. However the Brown Group’s portfolio was not diversified. Therefore their risks can be divided to two different risk – firm specific risk and unsystematic risk.
To estimate the performance of stock we can find the asset of the company and to find out what did they carries holding assets. California R.E.I.T. had a widen properties of retail buildings (57%) and can be easily find out it was a positive effects on the stock performance. The performance of Brown Group was much more risky than the California R.E.I.T. due to it’s not well diversified.
III. Background of California R.E.I.T. and Brown Group, Inc.
California REIT was a real estate investment trust in three state that made equity and mortgage investment in income product properties. Their operation includes retail buildings, industrial properties, offices and apartment. The corporation’s profits were negatively affected by the earthquakes in 1989 and the downturn in California real estate value. Therefore, there was significant price fluctuation between 1989 and 1990; the return from investment in 1989 almost showed a negative portion every month and positive returns only appeared in March, July and September respectively. Under such a volatile stock, the stock price was closed at $2.25 per share on 4th January 1991. Brown Group Inc. was the major manufacture and also the retailer of the footwear that includes the brand names Jordache, Naturalize and Buster Brown. After going through a major restructuring program in 1989, Brown’s cash flow and earnings have dropped but stayed positive and steady. The stock performance was relatively variable, as the movement of stock seems to be very sensitive...