Replies to post #15948 on A.I.M. Users Bulletin Board (AIMUSERS)

[Toofuzzy]

RE BETA

Beta: A measure of a security's systematic or market risk. While most stocks move in in the same direction as the stock market, the level of the beta indicates the degree of correlation between a security and the market. The market is the benchmark and has a beta of 1.

I BELIEVE a beta less than one means that it TENDS to move OPPOSITE the market.

With a beta that much less than 1 it means it moves opposite of the market in a really big way.

Even something with a beta of 1 can have a lot of volitility. It just means that the market is likely to have the same volitility at the same time.

There must be some measure of ABSOLUTE volitility that would be more useful to us AIMers.

Toofuzzy

[WTMHouston]

Some stuff I culled to try and better understand it myself.

http://www.travismorien.com/FAQ/portfolios/mptcriticism.htm

http://www.sherlockinvesting.com/articles/capm.htm

http://traders.com/Documentation/RESource_docs/Glossary/glossary.html

Beta A regression of the estimated coefficient that belongs to a particular variable.

Beta (Coefficient) A measure of the market/nondiversifiable risk associated with any given security in the market. A ratio of an individual's stock historical returns to the historical returns of the stock market. If a stock increased in value by 12% while the market increased by 10%, the stock's beta would be 1.2.

http://www.marketvolume.com/glossary/p0218.asp

Portfolio beta

Definition: Used in the context of general equities. The Beta of a Portfolio is the weighted sum of the individual Asset betas, According to the proportions of the Investments in the portfolio. E.g., if 50% of the Money is in Stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00, the Portfolio beta is 1.50. Portfolio beta describes relative volatility of an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P`s excess Return increases by 10% the portfolio is expected to increase by 10.5%.

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As to your specific question, I looked up the beta APOL (on AOL) and it shows as .16 (one decimal place less than the one you found). Given the swings and growth in that stock it does seem out of whack -- it could just be an error. Just glancing at a 5 year chart relative to the S&P and NASDAQ shows 500% growth for APOL and negative growth for the comparisons. This sure should produce a high (and perhaps a very high) beta.

As an aside, I sure wish I had backed up the proverbial dump truck on APOL in 2000. Outperforming the market does not get much better than this, even though the last year has been pretty rough.

Here is another article I found that boils some of the technical stuff down to common language:

http://moneycentral.msn.com/content/Investing/Simplestrategies/P84361.asp

Here is a discussion of negative betas:

http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/ReadTopicPage/source=IiCpDeGeDpJlNbI...

and another: http://invest-faq.com/articles/analy-beta.html

[OldAIMGuy]

Hi Ray, Re: APOL...............
Value Line shows its BETA to be 0.75. Yes this is low. They also show the Stock Price Stability to be "50" which is mid-pack. Price Growth Persistence is 100 which is very good if you want a growth stock!

Management owns about 20% of the outstanding shares. There's currently No LT Debt. Book value growth is expected to be about 20% per year for the next 3-5 years. Revenue Growth is supposed to be about the same.

The graph shows steady growth from 2000 through the summer of 2004 and then a bit of a pull back.

Insiders were selling in October, November, December and January, but those sales coincide with options, so that's acceptable.

Better to be buying it now than at its peak of $98!!

Best regards, Tom