Thread by @jpr007

WHAT DOES "BETA" REALLY MEAN ?

"Wall Street Analysts" and other commentators like to talk about "Beta" :

“Tesla has to have a higher return because it has a higher risk”

“It has a higher risk because it has a higher beta”

This is not the most useful way to think of "beta"

Beta is a measure of past volatility of an indidual stock relative to the past volatility of the broader market

Now consider this :

1. An investor’s investment risk is not in the past

2. An investor’s investment risk is not in the present

3. An investor’s investment risk is in the future

- once they own the stock, the only uncertainty that matters is "what will be the stock price at the end of my investment time horizon ?"

4.. An investor’s investment risk has nothing to do with present stock price volatility

5. An investor’s risk is ONLY about whether their expected 2031 Valuation will be achieved or not

6. The current beta tells us nothing about what the beta might be in 2031

7. Even if we knew the beta in 2031, it would tell us nothing about what the Valuation would be in 2031

8. Except that the higher the beta is in 2031, the higher the likelihood will be that the peak price for the stock will be above our median-based Price Target

- which is GOOD for the investor

THINK ABOUT IT

9. Beta simply means higher highs and lower lows

10. When you are a Buyer you want a higher beta to get lower Buying prices

11. When you are a Seller you want a higher beta to get higher Selling prices

12. Therefore, logically a higher beta should imply a higher future Valuation

- and therefore a higher discounted Target Price today

Because the Discount Rate should never change