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To: MSB who wrote (8)	7/24/1998 3:03:00 AM
From: EL KABONG!!!	Respond to of 253

MSB, From Investor's Alliance software, PowerInvestor for Windows, this definition of Beta: Beta A measurement of the volatility of a stock's price versus the overall market. The percent change in the price of a stock with a beta of 1.00 runs about equal to the percent change in the general market. A stock with a beta of less than 1.00 has better price stability than the market. A stock with a beta higher than 1.00 (say 1.60), tends to be more volatile in price than the market. Copyright c 1995-1997 Investors Alliance, Inc. All rights reserved. Now what does this mean in layman's terms? A stock with a Beta of 1.10 is about 10% more volatile than the average stock in the market. This means that highs are about 10% higher and lows are about 10% lower than the average stock in the market. A stock with a Beta of say .80 is 20% less volatile than the average equity in the market. This means it will trade in a tighter range than the average stock. Most investors are comfortable with stocks that have Betas in the .80 to 1.20 range. This range would be considered average by most standards. You asked "Which is better, a higher number or a lower number?". The correct answer is neither. Beta is merely one measurement tool or ratio in the investor's arsenal to be used in evaluating a stock's suitability for our individual portfolios. If you are a conservative investor who cannot abide price volatility in your portfolio, by all means avoid stocks with a high Beta. On the other hand, if you're very risk tolerant, then Beta isn't as meaningful to you. Day traders and short term traders actively seek out stocks with high Betas, because they're looking to make money on the price volatility or price swings. Does this help? KJC

To: MSB who wrote (8)	7/24/1998 3:25:00 AM
From: Bill Ulrich	Read Replies (1) \| Respond to of 253

MSB, I see K already gave you some very good info on beta. Please let me add some links which will help illustrate: You can get betas of companies in the Yahoo Profiles: IBM: beta 1.17, not much more risk than the S&P biz.yahoo.com IOM: beta 2.18, quite a bit more risk biz.yahoo.com Good glossary for financial terms: biz.yahoo.com and beta: biz.yahoo.com Essentially, a measure of risk for an individual stock compared to a common, stable market index, often the S&P as used in Yahoo's definition (not always restricted to the S&P though). -MrB and yes, we need to get another game of chess going <gg>

To: MSB who wrote (8)	7/25/1998 7:21:00 AM
From: Reginald Middleton	Read Replies (3) \| Respond to of 253

<Question: What is "Beta", and what is its relationship to a security? Which is better, a higher number or a lower number?> As defined in the RCM Financial glossary: Beta (Coefficient) - The degree of risk which cannot be decreased by diversification. A stock with a beta greater than 1 will rise faster or decline faster than the overall market. A stock with a beta lower than 1 will rise slower or decline slower than the overall market. Beta - the measure of how a given security performs in relation to other comparable financial instruments. Beta- In the capital asset pricing model, the systematic risk of the asset; the variability of the asset's return in relation to the return on the market. A measure of how a stock's movement correlates to the movement of the entire stock market. The Beta is not the same as volatility. See also Standard Deviation and Volatility. Copyright RCM Financial Group LLC 1996 All Rights Reserved The question you asked is a very imortant one. Beta, in laymen's terms is basically the primary risk parameter of a stock. It is calculated by comparing the volatility of a stock (standard deviation) to that of a large body of other stocks that are representative of the market in general (keep in mind that the beta is rarely calculated using the entire market as a proxy. most sources use the S&P 500, but some use the NYSE composite, so there will be differences in the number depending on where you get it from. The first definition explains that beta is a risk that cannot be reduced by adding more and varied stocks to your portfoilio (diversification). Many beleive that diversification was a primary method of hedging (insuring against) risk. They found themselves mistaken in the '90 when world realized that we are truly in a global markte place and it is very difficult to diversify. The second defintion, the one found in many B school texts, has been proven to be wrong so we will not go into that one. The third definition, as it relates to a popular pricing model, is very important, for it leads to the actual valuation of a stock using modern valuation techniques. The glossary that I pulled these from is the RCM Financial glossary, a listing of over 4,400 financial terms. It can be found at the New Media Financial site, rcmfinancial.com . Also available at the site are a plethora of investment and valuation primers which I think beginners should take the time to read and understand. As for which is better in terms of beta, the higher of the lower number, the lower the number the better for investors. You see, the higher the beta, the higher the (oppurtunity) cost of capital is for the company (and consequently the investor) due to higher risk. The lower the number, the lower the cost of capital. A compamy such as Microsoft, which has a beta of less than one (risk that is less than the S&P 500) and a return on monies invested of over 30% (give or take), has a much greater economic value than a company with the same return, but higher risk (cost of capital). Basically, you subtract the cost of capital from the return from a company's operations to determine value. That is how Wall Street's finest performs valuations. Traders (who differ significantly from investors in overall objective) relish high beta's for that is how they generate revenue, by attempting to take advantage of the extra volatility in a stock. Trader's do not attempt to do this for the long term however (because it is statistically very difficult if not impossible). For the long to medium term, investing is where the money is at and that is where a beginner should start to build his or her knowledge base. As a starter, I would like to recommend an article I wrote which attempts to debunk many of the myths in regards to investing in the U.S. stock markets. It is called the Case Against Earnings and although it is written for those who wish to spend some time studying the facts, I feel it is worthwhile reading for all, advanced practitioner and beginning investor alike - rcmfinancial.com Feel free to ask any questions you may have. Remember, there is no such thing as a stupid question. The only stupidity is in not asking the question when you need an answer.