gokou3

Why Volatility and Beta Matter

Mr. Hanson's article may not be making perfect sense, but I found the following very illogical as well:

"high Beta stocks are supposed to do well in a rising market---it’s when things decline that high Beta gets troublesome. High Beta amplifies returns in both directions."

When you say "supposed to...", I interpret that as "at least a >50% probability"... so if things are this easy, one can just buy high-beta stocks in a rising market and short them in a down market? But then, you don't really know when a market is "rising"... you really only know whether it has JUST risen or not. Thus, doesn't that make your proposition about the value of beta not very useful?

IMHO, beta is just what it is.. an indication of the volatility of a security, but NO indication of whether it should go up or down.