Investing 101:

Risk Terminology - BETA

About thirty years ago, statisticians armed with all of their
statistical theories began to confront the financial markets.

A
handful of useful tools emerged that the average investor should
be familiar with when they look to purchase stocks.

One secret that people "in the know" use is "BETA".

"Beta" is
a number which reflects how volatile a stock has been relative
to the market.

This number is also quoted on most quotation
services so it is easy to get to, but I have often found that it
is never defined.

A BETA of 1.00 means that on average, a stock
has traditionally matched the markets swings both on the upside
and on the downside.

A BETA greater than 1.00 reflects above
average market volatility, and a BETA of less than 1.00
indicates below average market volatility.

When a BETA is less
than zero it indicates that the stock moves contrary to the
general market, going down in bull markets and rising in bear
markets..

It used to be the case that Gold mining stocks would
have negative betas.

Internet stocks for example have very high
betas.

Many of the analysts that cross your TV screen and make
recommendations use BETA as their primary screening device in
searching for suitable investments.

So the next time your
broker calls with an investment recommendation, ask him what the
BETA is and then relish the silence on the other end of the
phone.

Then send him a copy of this article!

Dowjonesfully,
-Harald Anderson
http://www.eOptionsTrader.comHarald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of
Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies.

His goal in life is to become the kind of person that his dog already thinks he is. http://www.eOptionsTrader.com.

Harald Anderson