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Beta Management Company is a small investment management company. They hadapproximately 25 million dollars when they started in 1991. Their company goal is to enhancereturns but reduce risks for clients via market timing. Initially Beta¶s funds were invested intothe Vanguard 500, an S&P 500 no-load and low-expense index funds (with the remainder inmoney market instruments). The founder and CEO, Sarah Wolfe, adjusted the level of marketexposure from 50-99% of the fund. She tried to ³time the market´ and reduce exposure to themarket by decreasing the percent of the investment that was allocated to the Vanguard 500 index.When the market was about to go on an upswing they would invest more heavily in the indexfunds. Beta¶s performance was tied to Ms Wolfe¶s ability to predict the market. By 1991, MsWolfe decided it was time to invest in individual stocks of smaller companies. Based onrecommendations from stock market analysts they recommended that she take a look atCalifornia REIT and Brown Group. She hired two analysts for that purpose. California R.E.I.T¶sstock price closed at $ 2
per share and Brown Group, Inc.¶s price is $24. A $200,000 purchaseof one of these stocks would increase her total equity exposure to $20 million. Still, she hadsome doubts but she promised her clients of reasonable returns.