Thompson Asset Management

Executive Summary Based on the case “Thompson Asset Management” from HBS Professor William Fruhan and writer John Banko, this group exercise has the purpose to discuss various investment philosophies and consider the advantages of quantitative investing, especially technical analysis. Moreover, it should discuss the return variability and risk/return characteristics of the “Thompson Asset Management” funds, the ProIndex and the ProValue funds, regarding its returns, absolute and relative risks, as well as its risk relative to a benchmark index. The way to rebalance the ProValue fund should also be assessed as well as the improvements that can be done in order to improve the rebalancing process. To conclude, this group exercise aims to present the statistics and portfolio characteristics that TAM should present in the ProValue fund, when assuming different levels of investment. Exercise 1 An investment philosophy is a core set of principles or approach to maximizing returns that an investor can use in order to manage its portfolio. Some focus of the investment philosophies can be on value, growth, indexing or quantitative analysis.
Value investing is the philosophy of investing in a security when its share price undervalues its intrinsic worth. The investors that use this strategy search for companies’ stocks that from their point of view the market has undervalued. Moreover, value investors believe that fluctuations in stock prices do not correspond with the company's long‐term fundamentals but to the market’s overreactions to positive and negative news, being a methodology based on facts‐driven reasoning. Typically, value investors select stocks with lower‐than‐average price‐to‐book or price‐to‐earnings ratios, as well as with high dividend yields. The main concern for the investors that use this strategy is