Even though Braniff International Corporation was in deep financial trouble, a lot of people were surprised when the cash-short airline abruptly shut itself down May 12 and declared bankruptcy the next day.
Just as surprising to many analysts was the news that a Boston investment firm had bought some 100,000 shares of Braniff stock soon after.
Braniff, after all, was no longer generating any cash to pay its creditors even part of what it owed them. And it had angered many of those creditors with a highly secret -- and successful -- plan to fly all of its planes back to their home base at Dallas-Ft. Worth International Airport before it declared bankruptcy. This prevented the lenders from laying claim to the colorful jets in an effort to get something back on their loans.
Why, then, did Batterymarch Financial Management, the 13-year-old Boston firm that handles some $6 billion in assets for pension funds, charitable organizations, mutual funds, and other institutional clients, shell out well over $100,000 for a company with no apparent future?
The idea behind the move, says Alan Strassman, executive vice-president at Batterymarch, is fairly simple: Invest in a large number of companies in very poor financial shape -- so poor that most other investors are running away from them. A few of these companies may actually go out of existence, but the rest will either be reorganized or emerge from bankruptcy proceedings in a new form and be profitable once again.
''The idea is that you buy the whole ball of wax,'' said James Fraser, editor of The Contrary Investor, a Burlington, Vt., newsletter that tracks out-of-the-ordinary investments. ''Part of it will be bad, but the whole ball will do a lot better than the market.''
Braniff, Mr. Strassman says, simply fitted Batterymarch's criteria for companies in the ''corporate recovery group'' and so became an investment, despite any special problems or circumstances the airline might have.
Last week's purchase, he added, was not the first investment in Barniff. When Batterymarch embarked on this strategy two months ago, Braniff was one of the first companies it looked at.
In going this route, Mr. Strassman says, his company joined a handful of firms doing part of their investing with the ''down and out'' companies. Max Heine, owner of New York's Herzog Heine investment firm, manages two mutual funds that are open to individuals who want to invest in a range of companies in or near bankruptcy. The Bear, Stearns & Co. brokerage firm also does some of its over-the-counter trading in companies in bankruptcy proceedings.
Lately, firms like these have had a long list of troubled companies to pick from. A bleak economy only adds to the list of prospects hoping to survive until recovery. While names like AM International, International Harvester, Chrysler, and American Motors get the most attention for their financial difficulties, there are many others that permit wide diversification for investors.
Individuals could put a small portion of their portfolio in firms like these, Mr. Fraser says, as long as they buy enough of them, ''so you protect yourself from the ones that go bad.''
What makes Batterymarch unusual, Mr. Fraser notes, is that ''this is the first time a senior, respectable portfolio management firm has been found out to do this sort of thing.''
At Batterymarch, Mr. Strassman points out, some 120 companies are being studied and the firm has actually invested in about 100. He would not, however, name any of them. He isn't even sure how news of the purchase of Braniff stock became public, since Batterymarch does not publicize its investments except for a quarterly report with the US Securities and Exchange Commission, which isn't due yet. He thinks it may have been leaked by someone at a brokerage firm.
The publicity is out of proportion to the share of Batterymarch's total assets invested in bankrupt companies, Mr. Strassman says. At present, only about 5 percent of the portfolio is invested with ''corporate recovery'' candidates. And Braniff, he adds, is just one of 100 companies in that 5 percent group, so that only about 25 cents of every $100 Batterymarch manages is invested in the airline. The 5 percent share will never go any higher than 10 percent, he said.
When Batterymarch started this new investing program, Mr. Strassman says, it consulted with its approximately 115 clients, ''and only two or three said, 'We'd just as soon you didn't do that with us.' So we don't.''
Even the clients that chose not to join the venture were probably not too surprised when it came up. Since it was founded, Batterymarch has earned a reputation as a firm that looked for stocks that others didn't like. Its annual report sees virtue in words like ''contrary'' and ''out of step with the market.''
Many of Batterymarch's stocks have always been out of favor with the general trend of the market. These have included stocks with very high yields, like electric utilities; depressed growth stocks, like food stores and other retailers; and stocks in companies with underutilized assets, like aluminum companies and tire and rubber companies with valuable plants and equipment.
It uses computers to help find these companies, and those computers are being used now to help find stocks whose values have been prematurely lowered by the market. Bad publicity of the sort faced recently by Braniff and International Harvester often helps push these stocks to a price that makes them attractive to investors like Batterymarch.
With only two months of bankrupt-hunting behind him, it's too early to tell if the plan will pay off, Mr. Strassman says. But ''even if it is wildly successful, I would never expect it to become a big trend. . . . Most investors like to be in a crowd.''