19 July 2016

Is Beta a Measurement of Risk?

Most of the time we heard people said that the price of a share move up and down too drastically that it cause them to have a lot of worries which is why most gave up on buying shares.

Some of the good companies stock price can goes up or down 10-20% within a short time frame (a month or less) especially when market uncertainties arises among investors.

So is Beta (a measurement of volatility or systematic risk) a measurement of risk?

To answer this question, let me ask you one question:

If you are paying for something which is worth $1 for $0.60, is it riskier or less riskier than if you were to buy $1 for $0.40?

If you answered less riskier, congratulation! You have bust the myth that Beta is a risk! Because assuming that you have done your homework to come out with an opinion that a company's per share is worth $1 and they are selling for $0.60, wouldn't it make more sense that they have lesser risk and higher reward to buy at $0.40?

Therefore, my conclusion is Beta is not a risk, it is there to serve you.