Welcome to a website dedicated to one of the foremost consultants in the financial industry. We will examine the incredible background of Barr Rosenberg and the contributions that he has made in the financial space over the course of his career. Future blog posts will provide his expert opinions on topics such as the state of investments, investment principles for those new to the space to consider, the impact of COVID-19 on investments by age group, and what Americans should be doing financially in response to the economic landscape of the pandemic. It has never been more important to protect your financials and hone your financial repertoire. Fortunately, Barr Rosenberg can help via his insights.
Education and Early Career
From an early age, Barr was fascinated by logic and how society improves over time. He had systematic instincts and was focused on what society was, its current state, and how it could develop in the future. This distinct focus played an instrumental role in his education and subsequent work. Rosenberg reached U.C. Berkeley as an undergraduate when he was 16 and discovered his passion for economics in his junior year at the university. At Berkeley, in graduate school at the London School of Economics and then Harvard, Barr focused increasingly on mathematical modeling and computerized statistical analysis of economic processes. The new Chicago Center for Research in Security Prices (CRSP) database was just about to be released when Barr was planning his dissertation at Harvard as a study of capital markets, but when the data release was delayed, he instead wrote a dissertation in statistical theory, on the subject of Regression with Stochastically Varying Parameters.
This work was relevant because of “beta.” At that time, the recognized factors in risk analysis and risk prediction for individual stocks were industry returns and the market return. The theory of systematic risk, which imputed societal risk and the consequently merited reward to the overall return on the market portfolio, was being developed by Bill Sharpe at Stanford and John Lintner at Harvard. It was each stock’s exposure to the market portfolio, its “beta”, which was operative in this theory. Each stock’s individual beta was likely to change over time, and it was important to find a way to estimate and track those changes to see continued success in finance.
Developments in Finance
Learning from professionals in finance and investments, Barr explored “factors” in capital markets that favored certain kinds of companies at certain times. Often there was an axis associated with two opposites. For example, the size axis extended from small to large companies, the “relative -strength” axis extended from poorly-performing to well-performing stocks, the value/growth axis extended from stocks low price-to-book ratios to those with high price-to-book ratios, and so on. Barr named these axes “risk-indexes,” and did the theoretical work to assimilate risk-indexes and industry returns into systematic risk analysis and the calculation of beta. Each risk-index involved a modeling effort of its own, and the complete model that incorporated them was a better model as a result. The project overall emphasized the fundamentals underlying beta and introduced the idea of a “fundamental beta”.
Founding Barr Rosenberg Associates (BARRA)
In 1974, six years after his dissertation was completed, Barr founded a consulting company for institutional investors named Barr Rosenberg Associates (BARRA). BARRA has continued to operate as MSCI BARRA. BARRA provided four core services, all of which were somewhat unprecedented but not surprising in the sense that there was a recognized need for these services. First, providing an investment risk model that predicted the variances of individual stock returns and covariances between the returns of all individual stocks in formats that allowed calculation of risk exposure for any portfolio of stocks, which might be an existing portfolio or a hypothetical portfolio. Second, characterizing an existing or hypothetical portfolio in terms of these risk exposures, calculating a portfolio’s overall risk exposure and attributing it to exposures to individual stocks and other factors of return. Third, providing a portfolio optimization system that could calculate the best solution for updating a portfolio by making buys and sells so as to optimize the trade-off between reward and risk. (Andrew Rudd contributed a great deal to this.) Fourth, attributing portfolio investment performance to the operative factors maintained in the model and analyzing historical performance to appraise cumulative results. The implementation of these services
Barr Rosenberg’s experience makes him uniquely qualified to comment on the current ongoings in the financial market and help others learn more about the space. Rosenberg realizes that many citizens do not have a firm grasp of the financial sector due to its lack of integration into curriculums in early education. Fortunately, developing an understanding of how the past predicts the future has helped countless clients grow their financial knowledge and see the ongoing success with their investments. Check back often for insightful blogs and more insights from Barr Rosenberg.