45 responses

  1. DIY Investor
    April 16, 2011

    Excellent intro to the concept and use of beta. Understanding volatility of stocks and portfolios is important. It will help a lot of your readers!
    I liked the expressions on the faces.

    • moneycone
      April 16, 2011

      Thanks DIY! I don’t trade purely on technicals, but I find beta to be quite useful especially for unknown stocks.

  2. Money Reasons
    April 16, 2011

    Ironically, I owned BP. And since Cliff Natural Resources is in my backyard, I’ve been flirting with buying it too (especially give the trace elements concerns).

    Great write-up on beta!

    • moneycone
      April 16, 2011

      I too own BP, MR! Bought right after the disaster. I might consider CLF.

      • Money Reasons
        April 21, 2011

        I owned it before the oil spill disaster. I got out before their share price dropped too low though (whew).

        They had an 8% dividend yield back then.

  3. Buck Inspire
    April 16, 2011

    Thanks for the detailed explaination of Beta. Now I know why my stomach is always in knots. It’s because of high Beta. That third picture looks like me when I sell low after buying high!

    • moneycone
      April 16, 2011

      LOL! You crack me up Buck! :)

  4. Wealth Artisan
    April 16, 2011

    Hi MoneyCone,

    Great job on describing betas. I remember when I first started investing, the stock market was no better than a casino. Many people try to wade through stoks without really knowing what these numbers mean.

    A quick education reading articles like this will really benefit people in their stock purchases. A detailed stock quote may seem like differential equations to some people, but they really aren’t as scary as they look.

    Once you get a grasp of what each of those ratios, acronyms, and numbers means, you’ll have a much better time picking your investments. No more casino tricks, pick your stocks wisely by getting educated! Great article MoneyCone!

    Thanks,
    Timothy

    • moneycone
      April 16, 2011

      Well said WA! Thanks for the kind words!

  5. The Dividend Ninja
    April 16, 2011

    Money Cone, excellent post! :) and a good comment from Wealth Artisan as well.

    • moneycone
      April 17, 2011

      Glad you liked it Ninja!

  6. Romeo
    April 17, 2011

    Nice! I can tell that you put so much heart and effort in your posts. Did you design the men with the faces yourself?

    Excellent review on beta. I remember in my finance class how lost I was when trying to calculate it myself using the CAP model. It sucked. It’s a good thing we live a a technological “google” world.

    Romeo

    • moneycone
      April 17, 2011

      Thanks Romeo! I’m no artist by any stretch of imagination! These are called rage comics and there are online tools to create them.

      CAPM is a pain – thank heavens for online tools!

  7. Ravi Gupta
    April 17, 2011

    Great article! I’m a big fan of looking at beta because of the ETF portfolio I proposed on my website. I’m more of a slow and steady guy so I chose lower volatile components as the core of my balance sheet and put only 20% weight on very volatile instruments.

    Fan of reddit much?

    -Ravi Gupta

    • moneycone
      April 17, 2011

      That’s a good strategy Ravi!

      I love reddit!

  8. optionsdude
    April 17, 2011

    Beta has no direct impact on my portfolio because I use protective puts for every stock I hold. The situation you describe is a perfect example. There is no way that I can lose 30% even during a flash crash because of the puts. The last time I checked, I faced a maximal liability of about 6.5%. Using the puts has allowed me to take the emotion out of the equation and hold on during volatile times.

    • Moneycone
      April 17, 2011

      Interesting strategy you got there OD!

      • optionsdude
        April 19, 2011

        I saw enough damage to my retirement account with the tech bubble bursting and watching Worldcom go bankrupt. So, in 2007 I started buying put options on every stock I owned. It served me well when the market dropped almost 40%. I only lost 18% and bounced back rather quickly.

      • moneycone
        April 19, 2011

        Good to know OD! Looking forward to that post! I love personal stories of triumph! :)

  9. LaTisha @FSYAonline
    April 17, 2011

    When I read the section header “how do I calculate the beta of a stock” I thought you were actually going to break it down! That would have been way too much for a Sunday read lol. But this is a great intro to beta, I like the example you used. There are still many investors that don’t know how to incorporate a stock’s beta into their portfolio strategy. nice job.

    • Moneycone
      April 17, 2011

      Hehe! Wouldn’t want to ruin anyone’s Sunday! Work smart not hard – that’s my philosophy LaTisha!

  10. Squirrelers
    April 18, 2011

    Nice review and of beta, good refresher course :) It was a concept I enjoyed learning about back in business school, though I don’t focus on it these days in terms of stocks. Still, conceptually, it’s good to know – particularly if you’re investing in individual stocks or constructing your own portfolio.

    Personally, in terms of risk, I’m finding that I’m changing a bit as I get older. I’m becoming more risk averse with savings, but am willing to set aside small amounts for specifically designated “risky” ventures.

    • moneycone
      April 19, 2011

      Setting a limit on how much risk you are willing to take is always a good move whether it is Las Vegas or the stock market!

  11. Jeff @ Sustainable Life blog
    April 18, 2011

    That’s a great review of beta, and some nice words for market investing in general. My dad always told me to buy and hold, and not worry about what the rest of the market was doing – A lot of people sold at the bottom of the last recession because they were scared of what would happen, then missed out on all of the big returns after.
    You have to have an iron stomach sometimes in the market.

    • moneycone
      April 19, 2011

      ‘Be fearful when others are greedy and greedy when others are fearful’. You put it very nicely Jeff!

  12. Barb Friedberg
    April 19, 2011

    Nice treatment of beta. I’m always happy to see investment concepts applied simply and clearly! This wone’s going in my next roundup.

    • moneycone
      April 19, 2011

      Thanks much Barb!

  13. 101 Centavos
    April 20, 2011

    Great article, MC.
    Beta is one indicator I look at when I want slow and boring, and the Google Finance tool is the same one I use. I like the fact that it shows the percentage of institutional ownership right under it. Stocks with high institutional ownership seem to have higher betas.

    • MoneyCone
      April 20, 2011

      Interesting observation 101C!

  14. June Young
    April 22, 2011

    The simpler, the better. I am impressed by how you turned an utterly difficult finance/MBA topic into this. I think individuals who are interested in investing will find this very helpful and convenient. I personally am risk averse but it is true that if you want to accumulate wealth fast and furious, go for high risk and high returns. But you also have to possess a keen sense of the effects of the market velocity. Some rely on hunch but I say hire an accountant and really discuss it especially for substantial investments. You can also try speculation or forex trading for fun and fast earnings (or losses).

  15. June Young
    April 22, 2011

    The simpler, the better. I am impressed by how you turned an utterly difficult finance/MBA topic into this. I think individuals who are interested in investing will find this very helpful and convenient. I personally am risk averse but it is true that if you want to accumulate wealth fast and furious, go for high risk and high returns. But you also have to possess a keen sense of the effects of the market velocity. Some rely on hunch but I say hire an accountant and really discuss it especially for substantial investments. You can also try speculation or forex trading for fun and fast earnings (or losses). Derivatives are deregulated markets so you might just want to try that.

  16. Jasmine
    April 22, 2011

    Thanks for explaining the Beta. This is very helpful as I have a lot of questions on Beta. An investment concept executed simply and clearly is always the best.

    • moneycone
      May 6, 2011

      Glad you find it useful!

  17. Financial Independence
    April 24, 2011

    Two facts, as food for thought:
    - Only 202 of the 500 biggest companies in the United States in 1980 were still in existence 20 years later.
    - On December 29, 1989, Tokyo’s Nikkei stock average reached its all-time peak of 38,915.87. Twenty years later, the Nikkei has never again reached that level — and, in 2009, reached a new low of 7,054.98.

    • moneycone
      May 6, 2011

      Good reminder that there are no guarantees with the stock market

  18. The Biz of Life
    April 25, 2011

    I take a contrarian approach to investing— when the Gulf oil spill looked the bleakest was the best time to invest in BP.

    • moneycone
      May 6, 2011

      Value investing will never go out of style!

  19. Ash @ Sterling Effort
    April 29, 2011

    I guess I have a tendency to prefer low beta stocks, but I didn’t know that until I read this! Thanks for info – I’m going to calculate my portfolio beta now :)

  20. Hunter
    May 1, 2011

    Excellent description of Beta. Investopedia couldn’t have done it better. I’m a nerd when it comes to modern portfolio theory, can’t get enough of it.

    • MoneyCone
      May 6, 2011

      Thanks for the kind words Hunter!

  21. FreelancePF
    May 6, 2011

    Never heard of the concept of the “beta” before. Your blog keeps getting deeper and deeper.

    • MoneyCone
      May 6, 2011

      I’ll take that as a compliment! :)

  22. MoneyCone
    May 6, 2011

    Good to be on top of your portfolio!

  23. youngandthrifty
    May 13, 2011

    Fantastic post MoneyCone! I always wondered what Beta meant… Thank you :)

  24. Ilene
    August 2, 2013

    I just learned more about stock beta from this article than my class textbook Thank you

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