Brown Bearish

IndomitableInstall

This post is the first in a new column that will track Brunonian-influenced stocks.

Investing in today’s recession-battered, tech-saturated market can be difficult. New wealth management tools targeted at millennials have become ubiquitous on the Internet, while the old debate between the skeptical academics and the Wall Street elite over the value of financial advisors continues. But what if there were an alternative way to construct a portfolio of equities? A middle ground between the broad, diversified index fund approach recommended by academics like 2013’s Nobel Prize winner Eugene Fama and the expert-picked stock selection of Wall Street’s traditional financial advisors and hedge funds?

There are precedents, mainly in the world of mutual funds and ETFs. Some recent companies have encouraged everyday investors to purchase equities grouped into ‘concepts’ – asset classes they predict will take off in the market, i.e ‘solar energy’ – that have made investing easier while leading to predictions that the system will eventually render exchange-traded funds obsolete. But this approach still requires a substantial amount of luck and economic know-how – if investors cannot reliably predict the future directions of individual stocks, will they really be more capable at predicting the directions of asset classes?

What if there were a broader, more intangible set of criteria for equity selection? Criteria based not around a predicted trend in the market but around the inherent value of companies rooted in innovative intellectual practices and reliable leadership? Hey, those values are deliberately cultivated at Brown! Brunonians, after being selected for their curiosity, creativity, and diversity – all traits of rapidly increasing value in today’s knowledge economy – are then educated in a tradition of  via the New Curriculum. Unsurprisingly, Brown alumni also have a long history of success in the business world, creating and helming components of some of the most widely traded companies in the world.

Brown Bearish, a new weekly column on Blog, will follow a portfolio of equities purchased from several of these companies and examine their performance in light of both in-firm developments and broader market trends.


The Criteria

Specific criteria for a publicly-traded company’s eligibility for the portfolio include:

  • founded or co-founded by an alumnus of Brown
  • currently run by one or more alumni of Brown in the roles of CEO, CFO, COO or CTO
  • previously run by a Brown alumnus who was particularly instrumental to the company’s success and/or integral to its vision
  • founder and/or current CEO of a major subsidiary of a firm is a Brown alumnus
  • possesses one or more Brown alumni as shareholding board members
  • has had an unusually large number of Brown alumni instrumental in major company projects and/or operating at relatively high levels within the organization

All these qualifications ensure that a firm included in the portfolio is at least partially influenced by the leadership of one or more Brown alumni, and those values of creativity and specialization cultivated at the University. Brown Bearish will examine whether companies guided by these principles can achieve reliable long-term growth across a variety of industries, consistent with the buy-and-hold strategy of a diversified portfolio.

 

The List:

Apple (AAPL) – Andy Hertzfeld ’75, John Sculley ‘61 – member of development team behind original Mac and Mac OS, president from 1983 to 1993 (respectively)  – technology, media, and telecommunications

Interesting fact? Carl Icahn recently claimed that much of the company’s growth potential has yet to be priced in.

Dr. Pepper Snapple Group (DPS) – Tom Scott ’90 and Tom First ’89 – founders of Nantucket Nectars, subsidiary of Dr. Pepper Snapple – retail (food and beverage)

Interesting fact? Take ENGN 9.

IBM (IBM) – Thomas J. Watson, Jr. ‘37 – son of IBM founder, president of IBM from 1952 to 1971 – technology, media, and telecommunicatons

Interesting fact? The Jeopardy-winning Watson robot is named after his Dad, who didn’t go to Brown, but Jr. is often credited with developing IBM into a computers powerhouse and was referred to by Fortune as the “greatest capitalist who ever lived”.

Oracle Corporation (ORCL) – Bryan Cantrill ’96, Mike Shapiro ’96, ’97 ScM, and Adam Leventhal ’01 – award-winning engineers at Sun Microsystems, main subsidiary of Oracle Corporation – technology, media and telecommunications

Interesting fact? Paul Zuchowski ’87, chief engineer at Oracle, recently gave the keynote speech at this year’s Hack@Brown.

Starwood Hotels and Resorts Worldwide (HOT)Barry Sternlicht ’82 – founder and former CEO, Starwood Hotels and Resorts – hospitality

Interesting fact? Starwood pioneered the now-ubiquitous ‘luxury boutique’ hotel brand with its introduction of the ‘W’ line of hotels.

Tiffany and Co. (TIF) – Walter Hoving ‘20 – revitalized Tiffany and Co. after purchase of controlling stake in 1955, chief executive until 1980, sales increased from $7 million to $100 million – retail (luxury goods)

Interesting fact? When President Kennedy ordered Lucite gifts for staff members who had helped out during the Cuban Missile Crisis, Hoving is reported to have replied “we don’t sell plastic,” after which the order was promptly switched to silver.

Time Warner (TWX)Ted Turner ‘60 – founder and head of Turner Broadcasting System (CNN, TNT, Cartoon Network), subsidiary of Time Warner – technology, media and telecommunications

Interesting facts? Turner was expelled from Brown for having a member of the opposite sex in his dorm room, but received an honorary degree in 1989.

VF Corporation (VFC) – Jeffrey Swartz ’82 – CEO of Timberland, subsidiary of VF – retail (apparel)

Interesting facts? Timberlands will never be out of fashion.

 

The Portfolio 

BrownBearish 3.15.2015

[Yes, we created this portfolio a couple of weeks ago.]

Using a practice UpDown portfolio with initial buying power of $1,000,000, each company is represented by roughly $100,000 worth of shares, with $200,000 kept in cash for other buying opportunities that may arise. While a long-term buy-and-hold approach will be the foundation for the portfolio, some shares may be sold in certain companies if the circumstances demand it.

Where will the portfolio go? Will its tech- and media-heavy emphasis see it collapse in an unforeseen bubble, or will a swelling economic recovery prove rewarding to equities influenced by principles cultivated here at Brown University? As with so many aspects of the market, only time will tell.

Image via and via Liam Trotzuk ’16.

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