To: Professor Duchin

From: Bullseye Investments; Riley Brown, Mckenzie Granston, Vahagn Madatyan, Christian Orr
Date: 5/23/18
Subject: Stock Case Write Up Memo
Discussion of Firm and Market Events that Impacted the Performance of our Portfolio:
1. Aurora Cannabis Inc. - ACBFF
The overall demand in the Canadian Cannabis industry has been continually increasing. The
number of registered medical cannabis patients increased by nearly 250% from the prior year’s
quarter. This can be attributed to the notable shift in the public’s acceptance of marijuana use. On
June 7th, 2018 there will be a senate vote on Bill C-45, an act proposing the legalization of
recreational marijuana. However, Aurora’s quarter report shows that the company has been
tallying losses. These losses can be attributed to the 6% decline in international dried cannabis
sales. International sales have temporarily stalled due to the fact that facilities are currently
operating at maximum capacity. To overcome this obstacle, Aurora is entering a factory
expansion phase. Experts predict Aurora to have financial success in 1 to 2 years once their
expansion is complete.
2. Microsoft - MSFT
Just like the market, Microsoft stock has been performing well. This can be attributed to the
highly anticipated release of the Surface Hub 2. It is expected the giant tablet will be released to
the consumer market in the second half of the year. In addition, the growth of the cloud
computing services industry as a whole has been consistent over the past few years. Microsoft is
a worldwide leader in this industry and is committed to innovative technological development.
Investors remain optimistic about the future of this stock.
3. JPMorgan Chase - JPM
JPMorgan’s stock has outperformed the market in our time holding it. A key reason for this
is that JPM’s Q1 earnings outdid expectations. In a recent statement, JPM’s CEO mentions
recent tax reform which has been a major contributor to the company’s success. U.S. banks have
been the big winners of the Trump’s administration lowering the corporate tax rate, and thus the
success of JPM’s stock price reflects that.
Lastly, JPM announced a preferred dividend on April 13th. They also gave out a common
stock dividend before we purchased, on March 20th. While this seems beneficial to investors, it
also means that this money is not reinvested in the company. After seeing the price of JPM dip
after the announcement 13th, we wonder if this is why there has been stagnation after the price
boom early in the case.
4. Alibaba – BABA
At the start of holding shares in the Chinese company, there were political incident that
affected its price. There was talk from President Trump to “level the playing field” between the
U.S. and China by using tariffs. This lead to a 12% price drop in the Alibaba stock. However,
investors’ fears were somewhat what dramatic because almost all of Alibaba’s sales happen
within in China so a trade war between the two nations via tariffs would have little effect on
BABA. Thus, after the initial scare, good news came for the company in the form of a great Q1
earnings report and their acquisition of Daraz, a Pakistani online shopping company. These
events both led to a rebound in the stock’s price in the latter half of the case.

Discussion of our Portfolio Vs the Market in Terms of Risk, Performance, and Volatility:
Our portfolio performed slightly better than the market. We can see this through our
average portfolio return of 0.01001 or about 1% and the VFINX return of about 0.00969, roughly
1% as well. We also performed better than the VHGEX Index but performed inferiorly to the
QQQ Index. To see further numerical comparisons with the Global and QQQ Index, see the
Appendix 1 chart. For the purpose of further comparison analysis, we will be focusing on the
performance of our portfolio to the Vanguard S&P 500 Index.
Since the return on our portfolio was slightly higher, it means our portfolio was also
slightly riskier due to the Risk and Return Tradeoff. Our standard deviation on our portfolio is
0.03 and the VFINX standard deviation is 0.0113. We can also take a look at our levels of risk
through evaluating the risk of our portfolio and the market by comparing betas. With data taken
from Yahoo Finance on May 22nd, MSFT has beta of 1.27, BABA has beta of 2.66, JPM has beta
of 1.12, and ACBFF has a beta 2.37. Using this information, we can estimate a portfolio beta of
1.807 based on our portfolio weights of 35%, 25%, 20% and 20% respectively. Since our
estimated beta is higher than the market’s beta of 1, we can assume that our portfolio has a
greater systematic risk than the market. Thus, shifts in the market are amplified within our
portfolio.
It makes sense that our portfolio was riskier than the market, first and foremost because
we only had four stocks to achieve the same level of diversification as 500 different stocks in
VFINX, which is nearly impossible. Furthermore, given that all of our stocks had betas higher
than 1, we know that our portfolio as a whole is more sensitive to changes in the market, which
creates higher risk. Lastly, the riskiness of our stocks makes sense because we chose stocks from
several different international markets which were subject to all sorts of different circumstances
which would impact stock price.
Volatility in a stock and the overall market occurs from several different factors. There
are internal and external influences that can increase or decrease a firm’s volatility. For example,
new leadership, new projects or products, and financial reports are examples of internal factors
that can either increase or decrease a firm’s volatility. External factors such as the state of the
economy, changing political conditions, and rising social movements can have similar effects.
Overall though, any significant news regarding a specific company that reaches the media can
have significant impact on a company’s volatility.

What We Learned:
Our main takeaway from this project is that despite how much research and effort you put
in to picking stocks, it is still extremely difficult to predict the movements and fluctuations of the
market. For example, we tried to pick a well-diversified portfolio and tried to avoid the consumer
irrationality of preferring local stocks through choosing internationally based companies from
different industries. However, during the time of our case study, the local market performed
better than the market at large, and thus while our portfolio still did better than the market
overall, we did not perform as well as some of our peers who chose to invest more locally. We
also learned that picking stocks should not necessarily be based on past performances with a
particular stock. One of our riskiest stocks was a Canadian medical marijuana distributor, which
we chose based on its past success in previous stock-tracking project. However, during our time
tracking it, the value of the stock decreased so the risk ended up losing us money. Overall
though, we learned about the difficulties in predicting stock performance and how consumer
irrationalities and preferences can either positively or negatively impact the success of your
portfolio.
Appendix 1: Performance Comparison Table