You ‘beta’ know what you are do­ing in this mar­ket

Finweek English Edition - - MONEY - Port­fo­lio Manager at PSG Wealth

How do I get the two main f inan­cial emo­tions ( greed and fear), which bump heads on a daily ba­sis, to l ive to­gether in har­mony? The good news is that I have the an­swer: own in­vest­ments with the low­est risk and the best re­turns. The bad news is that no one re­ally knows how to ap­ply this so­lu­tion to the prob­lem.

Most in­vestors to­day fit one of two per­sonas: long-term in­vestors who do not mind short-term volatil­ity, or short­term spec­u­la­tors who still be­lieve that the prob­a­bil­ity of share price in­creases is good. It cer­tainly wouldn’t be a bad idea for the lat­ter to take a closer look at the THE Top five cor­rec­tion beta value of their in­vest­ments right now.

The beta def i nes t he po­ten­tial volatil­ity of your share’s re­turn or decline, com­pared to the volatil­ity of the over­all mar­ket or in­dex. Sim­ply put, if a share has a beta of 1, it means that for ev­ery per­cent­age point that the mar­ket moves up or down, your share price will move up or down by the ex­act same per­cent­age.

It’s not a bad idea to shift your fo­cus to­wards low beta shares for the time be­ing. That way, should the an­a­lysts’ pre­dic­tions be cor­rect in that the mar­ket will rise, you will still ben­e­fit, and should their pre­dic­tions be wrong, your chances of los­ing more in a mar­ket decline are so hi ghe st an d lo west BETA share of 2008 (ex­clu din g divi den ds)

s durin Top 5 Low­est BETA (12 month s)

22 May ’08 to 20 Novem­ber ’08

g the much lower.

With the last great cor­rec­tion, the mar­ket de­clined by 46% be­tween May 2008 and Novem­ber 2008. In­ter­est­ingly enough, the top five shares (com­pa­nies) out of the top 60 largest com­pa­nies on the JSE that traded at the high­est be­tas de­clined by a larger per­cent­age and ended this pe­riod with a to­tal decline of 57%. The top five shares that traded at the low­est be­tas, how­ever, didn’t even decline by a quar­ter of the mar­ket’s to­tal decline over the same pe­riod.

By us­ing the cri­te­ria of shares on the JSE with a mar­ket cap­i­tal of more than R10bn, which have the low­est be­tas and for which an­a­lysts still pre­dict good growth, the re­sults were the fol­low­ing f ive shares: Nam­pak, Net­care, PPC, Reinet and Tsogo Sun.

Af­ter ap­ply­ing this process, I found it in­ter­est­ing that the five lower beta shares have grown by 59% in the last three years when com­pared to the 52% growth of the FTSE/ JSE All Share In­dex (both ex­clud­ing div­i­dends). I’m all too aware of the fact that his­tor­i­cal per­for­mance bears no guar­an­tee for fu­ture per­for­mance, but the data does give us a good in­di­ca­tion of the fact that you don’t have to take higher risks in or­der to en­joy higher re­turns.

In­vest with your mind and keep your emo­tions out of the man­age­ment process com­pletely.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.