Are you prone to nail-biting fits over the stocks you own? Do market gyrations leave you queasy? Then a beta checkup might be the remedy for you.
Simply put, a stock’s beta is a calculation of how much its price will go up and down relative to the S&P 500 stock index. Knowledge of a beta gives you a sense of what kinds of fluctuations your investment may undergo. “A beta is the best indicator of how volatile the shares you own are,” says Santo Famulare, an investment officer with AYCO, an Albany, New York-based money management firm.
How is a beta determined? If shares in the S&P 500 run up or down 10% during a given time period, any stock that matches that movement will carry a beta of one. Stocks that move 5% during the same time period will have a beta of .50; those that jump about twice as much, or 20%, will have a beta of two.
Typically, stocks in fast-moving industries, such as biotech, health care and technology, carry high betas. “There are variable degrees of beta readings in the technology sector,” says Famulare. “For example,” he continues, “Intel is at the lower end at 1.15, and more commodity- driven semiconductors like Microns are at the high end at 1.65.” Low beta stocks, he explains, are typically associated with more staid and stable industries, and points to such utilities as NYNEX (.80) and Texas Utilities (.70) as characteristic of this pattern.
While betas usually aren’t published in the newspaper, investors can find them in such stock guides as Standard & Poor’s and Value Line (available at most public libraries) and on most online stock services. Also, check with your broker about your stock’s beta.