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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: CatLady who wrote (4858)	3/12/1998 7:47:00 PM
From: Pancho Villa	Read Replies (2) \| Respond to of 18691

Hi CatLady, had prepared a most detailed answer at school but the computer froze and I lost it. Yes, Beta measures historical price volatility as it relates to market volatility. As long as the company's business does not change drastically, thing s are fine. As far as me using betas; to be honest, it would be one of the last things I consider when picking a stock, I do look at historical price levels; but worry more about my perceived risk of future cash flows than past volatility. Diversification is probably something I should care more about, not only in terms of individual holdings but also sectors. This is why I advocate the strategy of indexing part of one's portfolio [which fortunately/unfortunately I have not been practicing]. I read and article from a Harvard guy [don't remember his name] arguing that using the beta for a company, or average beta for a line of business, in order to get a risk adjusted hurdle rate to discount a project's cash flows may result in giving preference to low risk projects when in fact management may have a competitive advantage which cannot be reflected in the risk implied by the beta measure. The project however, may be rejected due to the penalty carried by the high discount rate used. Not all boils down to a present value of cash flows calculation. pancho