Beta, Bloomberg Terminals, and More
My thoughts on beta, and more, along with some future plans.
Recently, I heard the term - “beta”
Beta, is a way to measure the expected movement of a stock relative to movements in the overall markets.
But, what does that mean? In simple terms, if the market moves up 1, then the stock will go up “x” amount.
A higher beta would mean the investment moves up or down more than the market [riskier?]
A lower beta would mean the investment moves up or down less than the market [safer?]
From an initial perspective, one could assume high beta = high risk = better returns while low beta = low risk = lower returns.
Learning all of this made me want to calculate the overall beta of my portfolio.
To find this, I got access to a Bloomberg Terminal, and started to learn how to use it.
Going a little bit off topic here, but these terminals are very cool. I viewed it almost as a better google/Chat-GPT in the sense I can pull information that is accurate, with a sentence in the search box. Then I can mess around with the graphs etc. I’m actually about half way through the Bloomberg Market Concepts certification. That being said I see no reason why I should be accessing this on a day to day basis.
Now - back on beta:
I own 8 companies.
The average Beta is 1.09. BUT I went a step further and using the same numbers, calculated what the actual beta is based on the weightings within my portfolio. This returns a adjusted beta of 0.97 (rounded). Fairfax - which holds a heavy tilt has a beta of 0.757, certainly a contributing factor of the reduction from 1.09 to 0.97.
This really just tells me that overall everything is slightly less volatile than the market. Though I would add less volatile does not mean under preform.
My takeaway from learning this concept is that as an individual with a portfolio, beta doesn’t have a massive affect on me. I don’t check my fidelity account every day. But I’m here for the next few decades. If I was running a fund then yeah the volatility could be a concern. I would almost argue that if your beta is significantly higher than the SP500, over a period of time you probably would get blown up one in one terrible market and give back years of compounding.
Future Plans:
I came across a post from Connor Haley (@AltaFoxCapital) about an Undergraduate Small-Cap Stock Competition jointly hosted with the Harvard Financial Analysts Club. I have formed a small team for this. We have to pick a company with a market capitalization of greater than $300 million and not to exceed $2 billion. I primarily focus on larger cap companies ( with some exceptions) so this was a unique challenge that was really stimulating. I think we found a good one though! Regardless of the result I’ll make sure to post our pitch online after October 14th.
Pretty sure this year I will be heading over to the 2024 Berkshire Hathaway shareholders meeting in Omaha. It starts the day after my school semester closes which means - it could work! I’ll probably be going with my roommate and a few friends. I am pretty excited about the possibility of doing this. Even when I wanted to go in the past it always got in the way of AP Exams or just returning from a robotics competition etc.
I got bored and started looking to see what it would cost to take some classes this summer to possibly graduate a year early ( and save money) Now - I’m looking into going to South Korea possibly over this summer for 4-5 weeks and get 6-9 credits knocked out. Even with the expensive plane tickets; the credit hour cost is significantly lower than what IUB is charging me.
** Quick update, not planning on the South Korea trip - found out through TAMID ( a club I am in) I can apply to the fellowship program there. Going to give that a try.
Final Thoughts
I appreciate everyone who has read this, and especially those who have gotten down to this part. I was in the process of writing out a formal article on beta, but found that to be boring and just created this as a “blog” of sorts. I found this to be fun, and plan on writing more of these in the future. Eventually I’ll start creating some detailed analysis on companies I hold or follow but until then, I will write post in formats similar to this.
Thanks,
Anshul P.