CASE 2 - Daniel's Portfolio

Daniel is a part-time Starbucks barista and finance student. As a Starbucks employee, part of his wages was paid in the form of RSUs (restricted stock unit). 1 These RSUs, also known as bean stock, will be turned into shares after the employee has worked for two continuous years in Starbucks. The reason behind the bean stock program is to "turn employees into partners" so that employees can "share in their financial success." 2 After the vesting period of 2 years, the employee can decide whether to keep the stock or sell the stocks. Daniel has kept his stock for the last 5 years. As a finance student, he knows the importance of time value of money and investing early

for retirement. In class he learned that the longer the money has time to accrue, the more that investment will grow. He also knows that there are different investment vehicles that give different return on investment. One of the first things he learned was the "risk and return" concept. To make high returns, he has to be willing to take some risk. He could put his money into a savings account or a money market, a very safe and liquid account, or he could take the extra risk and put his investment in the stock market. Since he already has Starbucks' stock, he decides that this is the logical move for him. However, he also learned that a rational risk investor will always invest in a diversified portfolio. He is thinking about investing in other companies to diversify his portfolio. By diversifying his portfolio, he can reduce the risk that is inherent to investing in the stock market. As an investment novice who also has financial constraints, he decides to look at a number of options. He decides to invest in GM, XPO, VZ, and SPY. General Motors (GM) is an American auto manufacture company who employs over 180,000 people in five continents. 3 GM manufactures eight different car brands, among them Chevrolet, Buick, GMC, and Cadillac. GM brands themselves as a technological innovator. GM is one of the first to "mass-produce an affordable electric car" and develop a self-drive car. They are also making headways into producing a cleaner car. Recently, however, GM has been in the news for discontinu-ing several models (mainly sedans) and laying off over 14,000 employees. 4 This could however be more of a strategic move than a signal of weak performance. XPO Logistics Inc. (XPO) is a logistics company that assists their customers with their supply chain and transportation needs. 5 They help many companies with their online market space and make sure that goods reach the attended customers. They have 1,529 locations in 32 countries and serve 50,000 customers. The continual growth of ecommerce means that XPO's service will remain relevant and necessary to those companies looking to enter the ecommerce space. Verizon Communication (VZ) is one of the largest telecom service providers. In 2017, Fortune ranked them number 16. 6 While Verizon is most known for their wireless products, it also owns well-known subsidies such as Yahoo and AOL, and has recently created a new subsidiary called Oath, a media platform provider. 7 Verizon also recently launched Verizon 5G Network, a faster internet, in selected cities. 8 They plan to extend coverage to the rest of the nation in 2019. They will be the first company to provide 5G services to the public. Starbucks (SBUX) opened in 1971 in Seattle as a local coffee shop. 9 Since then, it has grown to over 24,000 stores in 75 different countries. Starbucks have over 30 coffee blends using high-quality beans from Latin America, Africa, and Asia. Besides coffee, Starbucks also sells tea, fresh food, and other merchandise. Starbucks is known as one of the "world's most valuable brands" according to Forbes as well as "best employer."

Daniel believes in investing in what he knows. He owns a Chevy truck and is a Verizon customer. Furthermore, he recently became aware of XPO logistics and their importance in the online market space. Though he has financial constraints and wants to receive the most out of his diversification benefit, he also decides to invest in SPY. SPY is the ticker symbol for SPDR S&P 500 ETF Trust. The SPY is an ETF that follows the S&P 500 Index. The S&P 500 is a market-value index that holds 500 of the largest companies that is listed in the NYSE or Nasdaq exchange. ETFs are similar to mutual funds that can be traded in exchanges. Daniel believes since he has financial constraints, holding SPY is a good way to diversify. He comes to you, an MBA student, for help on quantifying his risk and return. Daniel wants to know the risk profiles of the different companies. Furthermore, he wants to know if the newly constructed portfolio provides the necessary expected return to compensate for his risk.