Investing  |  OCT 2001

Working Money: Can Beta Help You Battle Volatility? by David Penn

Working Money: Can Beta Help You Battle Volatility? by David Penn Of all the enemies of capital appreciation, stock price volatility is one of the most immediate. Can beta help you know when your stock or portfolio volatility is out of control? Traditionally, stock investors have looked at two different but related forms of risk: systematic (or market) and unsystematic (or company-specific). Systematic risk is the risk of investing in the stock market in the first place, as opposed to putting your money in a return guaranteed investment such as a money market fund or certificate of deposit. Also referred to as “market risk,” systematic risk is the quintessential “ya got to pay to play” equation: in order to get the sort of returns the stock market has delivered over time (anywhere from 10% to 15% since the Crash of 1929 to present), you must accept the risk that equities will underperform from time to time. “Underperformance” refers to anything from a stock market return that is less than that attainable through a return-guaranteed investment, to a complete loss of invested capital (in the case of a stock that becomes worthless). For those who are uncomfortable with the thought of loss, even temporary, systematic risk may be risk too much.

by David Penn