Is Amazon a high beta stock or was it till now…now that it announced not such a great future.

Check out this Investopedia article on CAPM.

Hope that helps!

Stock prices can do wild things in the short-term. Because of that, you can’t judge the future health of your business or your investment based on the past price changes in relation to the market. That’s a long way of saying: Beta doesn’t matter when analyzing a business.

Sometimes opportunities arise in “low-beta” stocks because the value of the company grows considerably while the price (and markets) does not. Sometimes a great business will quickly fall in price – creating a high beta – and you have the opportunity to buy a wonderful business while it is on sale.

The long-and-short of it is that beta is a meaningless number. Make sense?

The first one is what other causes or variables would cause a beta to be different? Specifics please.

IF a stock has a beta of 1.05 and another has 1.25, hypothetically who is more successful?

Perhaps I wasn’t entirely clear and for that I appologize. My point was that beta means nothing when trying to analyze the risk of an investment. In fact, though Wall Street wants you to believe that high beta generally means high risk, the truth is that high beta is good for us.

Still, you shouldn’t judge the merit or riskiness of an investment based on beta. Beta is in the past. To beat the markets, the future beta needs to be higher than 1, but there is no way to judge that until after the fact.

I guess I could have explained it better. The last sentence can read: “Ignore beta altogether!!!”

Thanks for pointing that out.

Also, it seems like you base either positive or negative growth on Beta. Your definition of Beta is correct, but your ‘setup’, to me, is incorrect. A stock can go from $20 to $30 to $15 and end up at $22 at the end of the year, and have a crazy high beta depending on when you did looked at the beta, or if the market went up 10% for that year, that stock could have a beta of 1. You don’t need a high beta to indicate an undervalued stock. But thats the kicker, cause Beta only relates to stock prices and not the value of the company at all.

And your examples of valuation are off. If you value a company at $20, and it goes to $10, great. then it goes to $5, but then the value is $10? I know the example might be fictional, but how does this work out? Buying a dollar for .50 is great, but I don’t think you should even rely closely on Beta for being a guide.

Beta is just another fancy number to be thrown at an investor who doesn’t understand it. A true value investor should ignore Beta. I personally believe a stock or portfolio that has a low Beta can still give you very nice returns YOY, with less stock price movement, so less heart ache for the investor.

Basically, im getting from your post that your only saying high beta isn’t bad. Your last statement kinda erases most of the rest of your post besides ‘Though conventional wisdom and Wall Street say high beta means high risk, well, “F” that. High beta is your friend.’ From the beginning of the post it sounds like High beta is the only way to find ‘our’ kind of valuations. And then in the end you say ‘find any amount of Beta’. Were you trying to get a response? Or just not make yourself clear? Maybe you can show how low beta beats high beta, or vice versa, or just invest in index funds.

/rant