BUSINESSWEEK ONLINE : JUNE 12, 2000 ISSUE
BUSINESSWEEK INVESTOR Building a Folio Here's how Folio[fn] screens stocks to create an ''aggressive'' portfolio GOAL To select 30 stocks in the S&P 500 that mimic the index except with higher-than-average risk--and thus higher potential returns. 1 Folio[fn] decides that, to approximate the S&P 500, each of its 30 stocks should closely match the index's average market capitalization and price-to-book ratio. 2 To measure riskiness, the firm chooses ''beta,'' a volatility measure showing how widely a stock price swings relative to the S&P index. The index's beta is 1.0. If the S&P 500 rises (or falls) 10%, a stock with a beta of 1.4 would be expected to rise (or fall) 14%. 3 Folio[fn]'s computers search the 500 stocks for 30 whose betas are closest to 1.4 but whose market caps and price-to-book are closest to the S&P 500 average. 4 The selected stocks are checked for diversity. Finance accounts for 37% of the aggressive folio but only 13.6% of the S&P 500. The folio contains no oil, utility, or auto shares, but has enough sectors to ensure that none will dominate. 5 The 30 stocks' proportions in the folio are weighted to approximate the S&P 500's average measures. Because the stocks do not all move together, combining them reduces the folio's beta slightly, to 1.35. 6 A client who wants to buy the aggressive folio can modify it--deleting some stocks, adding others, or changing the stocks' proportions. The Folio[fn] Web site updates the folio's beta as they change. 7 When a customer buys the folio, he owns the stocks. He can later add or sell stocks, with advice from the site on which shares to sell to minimize taxes. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Best of Both Worlds? TABLE: Building a Folio INTERACT E-Mail to Business Week Online

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