Beeline Capital Advisors

Beeline Capital Advisors is an asset management company that has discretionary authority over its client accounts. We invest primarily in equities of public companies with a goal of achieving absolute returns every year that are superior to the S&P500 index performance on a risk-adjusted basis. We take positions in companies that reflect our core strategy while managing risk for our clients efficiently. At the same time, we will always seek out and explore multiple avenues for profitability. As such, we will invest in options both for hedging as well as speculative purposes.

Beeline Capital’s investment philosophy is rooted in a number of ideals and beliefs that drive our investment strategy, and understanding these key drivers

establishes the guidelines for how we invest and what we invest in.

Our view is that equity markets are efficient in the long term, but exhibit inefficiencies in the short term, up to a few years. We hold that stock price movements in developed markets are primarily driven by aggregate expectations of future earnings, confirmed on a quarterly basis or upon release of material information. Between quarterly earnings, however, we tend to have noise that is a reflection of investor sentiment, demand and supply, and other factors. Furthermore, the amplitude of movement is rarely reflected appropriately during these correction moments, be it due to market emotion or a need for an institutional investor to rebalance a large portfolio. We also view these moments of price discovery as excellent short-term opportunities.

Finally, we recognize the market is king. While all our information, analysis, and experience may point one way, the market ultimately dictates what is “normal”, “overvalued”, or “undervalued” and we will hold contrary views only up to a certain point. This view plays both into our short-term trading and overall risk management strategy.

Within our tenets of investment philosophy, the types of investments we engage in typically fall into one of few categories. However, there are also certain

types of positions we never undertake except as temporary or transitory states.

A. Primary strategy

Our primary strategy is long biased, based on a blend of fundamental and DCF analysis; we will identify well-run companies, those with potential for growth, as well as ones with steady cash flows and go long on them.

In general our approach is concentrated and loosely diversified under normal economic conditions. We do recognize that the pitfalls of increasing correlations under recessions. but our risk management strategy kicks in before fully experiencing such effects.

Based on our past experience and comfort level, the main areas we currently invest in are:

• Technology

• Consumer discretionary 

• Consumer non-cyclical

• Energy production (typically MLPs) 

• Real-estate (through REITs)

We favor companies that tend to solve key problems, create highly differentiated products or service, have strong management that tend to deliver on their promises and generate financials that reflect their actions. These companies normally trade directly in the US or often through ADRs, but we may trade in countries that have well-established markets.

In addition to reviewing SEC filings and investor materials, our analysis is based on pulling together information from a variety of research reports, speaking to experts in the field, hands-on product review, and “material” information that is legally obtained to create financial models and put together independent opinions.

We typically take a bottom-up approach to evaluate companies, often in light of macro conditions but may occasionally start with small positions to “get in early” and then scale in as we continue to gather evidence that provides us confidence. Under such situations, we will often hedge our initial positions with protective puts or stop orders to limit possible losses.

In general we prefer to avoid shorting company stocks except as a sub-strategy described later. We do not actively seek out companies to short, but may encounter them in the course of analyzing companies that we wish to take a stake in. Should we choose to short, we will often pair them with protective calls as a hedge against upward moves.

B. Auxilliary strategies

In conjunction with our core strategy and hedging with options, we often engage in a variety of volatility plays, spreads and market neutral strategies. The techniques we use are fluid, always evolving, and usually restricted to less than a quarter of the portfolio.

Common options strategies include buying strangles or reverse iron condors, bull spreads and bear spreads, but the range of combination positions is influenced by market conditions and our risk management approach. The decision for such plays is normally sparked by companies we have been following or comparing for analysis. Pure directional play for options is rare and they normally exist in our portfolio as remnants of legging in and out of combo trades.

In addition to combination option plays, we engage in classic pair trading. While the technique resembles statistical arbitrage relying primarily on historical correlation, the underlying choices for selecting legs of the pair to go long or short are based on fundamental analysis rather than technical.

Finally, we do a limited amount of day trading of stocks and options based on our belief of short-term market corrections or search for efficiency. The universe of stocks we select for day trading is restricted to the companies we have followed closely or studied for the purposes of staking positions in. This is a volatility play, where we attempt to take advantage of “noise between the release of material information”.

We begin our approach with measurement of performance and quantitative metrics, but our management style is discretionary. Our view is to not necessarily use a set of hard and fast rules for every position, but rather to take a holistic approach to the total portfolio value. In general, we start conservatively with new client capital, and the longer we have the privilege of managing client funds, the more we are comfortable dialing up the risk level. Likewise, for existing clients, earlier in the calendar year, we maintain a low tolerance for any loss while further down the line we relax the requirements, resetting the process every year.

That said, there are events that could trigger very strict buy/sell rules. We have policies in place to help ride out rocky situations such as the Nasdaq index collapse in 2000 and broader market crash in 2008. Having a set of discretionary policies for the normal case combined with a set of rigid rules for the extreme/rare case has served us effectively, and we expect will continue to scale and serve us well in the future.