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get rich and share the wealth
Beta is a measure of how a particular stock's price moves relative to the market as a whole. It is usually described as a measure of volatility. There are individual stock betas and industry betas.
A beta of one indicates that the stock's price moves exactly with the overall market. For example, if the market goes up 20%, the stock price goes up 20%. Market down 10%, stock down 10%. This is, of course, calculated over a period of months and does not necessarily hold true on a daily basis.
A stock with a beta of more than one is more volatile than the market. If the market goes up, it tends to go up at a greater magnitude (i.e. market goes up 10%, stock goes up 15%). The higher the beta, the more volatile the stock. A beta of less than one indicates that the stock's price is more stable than the market (in general and over a long time period).
A beta for an entire industry would compare how the companies in that industry fare relative to the market. For example, high technology stocks, as a whole, probably have a higher average beta than one. In comparing stocks within an industry, it can be useful to know the industry beta and how a specific company compares to it. For example, if you know that the beta for telecommunications stocks was 1.3 and you found a company in that industry with a beta of 0.8, this would tell you that the company is not only less volatile than the market as a whole, but extremely stable compared to its industry -- which could be good or bad depending on whether you are looking for price stability or rapid price growth.
This is just a brief outline of what beta is and how it is used. For more information, I would have to send you to the library. Look up Capital Asset Pricing Model and Portfolio Management Theory in a good book on long-term investing.
2 comments:
Hi Eve,
You can add me to your list of readers. I love reading your moms emails and I equally enjoyed reading your blog tonight. If you figure out this get rich thing, and I read about you getting rich, then maybe it will happen to me also.
Best of luck,
Your long lost cousin Jami
Yeah for cousins! Send me your email address to girlsgetrich@gmail.com and I will send you some of the photos I am going to take of all our peeps this weekend. Everyone is getting so big. : )
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