BETA OF STOCKS VIA BUSINESS WEEK

Came across an interesting article on the Business Week website.  It provides a simple and clear explanation of stock beta numbers. This is college Finance 101. 

Key Point: The sooner you learn and understand this and other finance and economics related topics, the better off you will be.

Stock Screen: Low-Beta Beauties

S&P's latest list finds top-ranked stocks that tend to be less volatile than the broader market. Among them: Genentech, PepsiCo, and Wal-Mart

By Beth Piskora


The risk metric known as beta can be a useful investment criterion during these times of market volatility.

An issue with a beta of 1.5, for example, tends to move 50% more than the total market in the same direction. An issue with a beta of 0.5 tends to move 50% less. If a stock or stock fund moved exactly as the market moved, it would have a beta of 1.0. Thus, high beta is typical of a volatile stock, while a low beta is typical of a stock that moves less than the market as a whole. A stock with a negative beta moves in the direction opposite to that of the market. With a beta of -1.0, a stock has the same volatility as the market, but tends to rise when the market falls, and vice versa.

What are your thoughts?

ECONOMY 2008: THE SECOND HALF

This is a rather gloomy assessment. Hopefully there is some good news that is just over the horizon and not yet on radar.

The stock market expects the future to be less profitable. Market is down big time this week.

Oil closed above $140. High oil & gasoline prices will probably be a strain for some time [3-6 months +]. Not seeing $1.999 gas any time soon. The station here in town has regular 87 up to $4.199 [6/27/08]. This was a jump of 20 cents from yesterday [the price had fallen 6 cents in the previous 24 hours].

Taxes look to be going higher not lower.

Unemployment is 5.5%. It jumped .5% as the most recent move. Will probably increase for the rest of the year. It may hold steady for a month or two but the trend is for higher unemployment to close out the year. Prediction is 5.9% - 6.1% unemployment to close out the year.

What else may happen...

• Firms will have lower profits in the second half.
• Shareholders will demand that management fix it.
• Management will cut costs [add more technology and reduce payroll].
  
• This will increase productivity and should help margins a bit.
• The folks who are unhired will have trouble finding replacement income.
• Consumer spending will drop.
• Sales and profits will fall.

What are your thoughts?