Bands
Strategic Capital Management, Llc (a)
Executive Summary:
The objective of this report is to evaluate investment opportunities for Strategic Capital Management, LLC regarding stocks of Creative Computer and/or its subsidiary firm Ubid. The analysis deduces arbitrage to be the best investment strategy.
Strategic Capital Management (SCM), LLC:
SCM is a recent entrepreneur venture founded by Elena King and two of her fellow classmates. The company has currently generated 20 million dollars and aims for annual returns of 10 percent. Its investors are charged a management fee of 2% of assets under management and an incentive fee equal to 20% of profits. Moreover company policy requires investors to keep their money invested for a minimum of two years.
Recent meetings with prominent analysts, Henry Blodgett of Merrill Lynch and Mary Meeker of Morgan Stanley have indicated the Internet Sector to hold promising investment opportunities, therefore Creative Computers and its subsidiary Ubid present potential prospects for investment.
Analysis:
Internet Sector: Dot-com Bubble
The dot-com bubble has enabled the Internet sector and its related fields to yield earnings at an above-average rate relative to the market. Hence the expected return on these growth stocks is great (see figure below). However these investments involve an inherent risk that must not be ignored. Because this sector is categorized by strong competition the need for innovative and skillful business strategies is a must.
** (Note: since our case is set in 1998 it is important to note how the graph assumed a positive trend and ignore the instance of the tech bubble burst)
Creative Computers and Ubid:
Creative Computers is a catalog distributor of computers and computer peripherals. Its recent business activity included the replacement of its existing distribution network with an e-commerce approach. This led to the formation of Ubid, an internet auction firm. Moreover this move highlights the
Executive Summary:
The objective of this report is to evaluate investment opportunities for Strategic Capital Management, LLC regarding stocks of Creative Computer and/or its subsidiary firm Ubid. The analysis deduces arbitrage to be the best investment strategy.
Strategic Capital Management (SCM), LLC:
SCM is a recent entrepreneur venture founded by Elena King and two of her fellow classmates. The company has currently generated 20 million dollars and aims for annual returns of 10 percent. Its investors are charged a management fee of 2% of assets under management and an incentive fee equal to 20% of profits. Moreover company policy requires investors to keep their money invested for a minimum of two years.
Recent meetings with prominent analysts, Henry Blodgett of Merrill Lynch and Mary Meeker of Morgan Stanley have indicated the Internet Sector to hold promising investment opportunities, therefore Creative Computers and its subsidiary Ubid present potential prospects for investment.
Analysis:
Internet Sector: Dot-com Bubble
The dot-com bubble has enabled the Internet sector and its related fields to yield earnings at an above-average rate relative to the market. Hence the expected return on these growth stocks is great (see figure below). However these investments involve an inherent risk that must not be ignored. Because this sector is categorized by strong competition the need for innovative and skillful business strategies is a must.
** (Note: since our case is set in 1998 it is important to note how the graph assumed a positive trend and ignore the instance of the tech bubble burst)
Creative Computers and Ubid:
Creative Computers is a catalog distributor of computers and computer peripherals. Its recent business activity included the replacement of its existing distribution network with an e-commerce approach. This led to the formation of Ubid, an internet auction firm. Moreover this move highlights the