mardi 5 août 2014

What about Beta, bro?

Some investors are proud to tell us that they don’t use beta. They don’t give a shit about beta.
But what the fuck is a beta? An old videotape, just before the VHS? Oh shit, those investors are pretty up to date by letting down an old technology that’s been obsolete for 20 years.
But a beta is also a greek letter, a version of a software and maybe a lot of other very cool things.
In investment, beta exists too. So many fucking definitions of the same greek word, which is in fact a letter. Holy cunt.
So, in investment, a beta is a measure of volatility. A beta higher than 1 means that the price of a stock moves with more emphasis than the stockmarket. A beta lower than 1 means that the price of a stock moves with less emphasis than the stockmarket.
For example, if the beta of McDonald’s is 0,36, it means  that the price of the stock moves with less emphasis than the stockmarket in a normal day.
In his last ROE report, Jason Donville tells that he never watches the beta coefficient of the stocks in which he invests. But it appears that most of the stock he buys have low beta.
Come on everybody, wake up! I’d even dare to say, come on Jason, wake up!
If the price of a stock moves with more emphasis than the stockmarket, it’s mainly because this stock is affected by the economy in general. If a stock is affected by the general state of economy, it’s because it’s earnings fluctuate in relation with the state of economy. And if you're looking for stable growth like Jason Donville or a lot of other good investors, you'll be looking for companies that grow in a steady way.
So, if you buy a stock with a low beta, earnings are generally more predictable than a stock with a high beta. That’s why beta coefficient tells something and has some importance in my opinion. It GENERALLY (there are some exceptions) reveals that the earnings are stable whatever the state of economy is.
Below are the Beta of some stocks. You’ll see that healthcare stocks have a low beta. And construction related stocks have a high beta:
Alimentation Couche-Tard: 0,04 !!!
Berkshire Hathaway: 0,35
McDonald’s: 0,36
Merck: 0,39
Pfizer: 0,68
Valeant: 1
Deere: 1,29
Caterpillar: 1,59
Bombardier: 1,65 
Appreciate low beta's, bro.

1 commentaire:

  1. I'm also a fan of Donville's picks, your blog is funny and instructive, keep going!