Is “Beta” Broken?

We believe quality & valuation are better measures of risk:

  • Beta, or the amount a stock price goes up and down relative to the market, is a popular measure of “risk”
  • Famous investors such as Seth Klarman have observed that this idea is “preposterous”1
  • Below is the market cap of firms that that lose money but are very low risk2 based on beta
  • In our CFTC here we documented that there is a record $6 trillion worth of stocks losing money
  • We believe common sense indicates that expensive firms bleeding cash are dangerous

As documented in our research on volatility and beta we discussed the dangers of relying on these commonly used and accepted measures of “risk.”  

See below for a list of stocks that lost money in 2019 (pre Covid) and are still losing money today but beta is telling you are “low risk”

 

 

 

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Sources
  1. Margin of Safety Risk-Averse Value Investing Strategies for the Thoughtful Investor, Seth A. Klarman, p. 113
  2. Bottom 20% of firms in the Kailash ABM Universe based on 36m trailing beta, ex-financials
Disclaimer

The information, data, analyses and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. 

Kailash Capital, in preparing the information, data, analyses and opinions presented herein, has obtained data, statistics and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. 

Kailash Capital and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.