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The Riskiest Bet in the Stock Market Isn't What You Think

Too many investors fail to understand and account for risk when building a portfolio, Fool contributor Tim Beyers says in the following video.

How so? They think of beta -- a measure of volatility -- as a proxy for risk. Thus, instead of calculating the possibility of suffering a 100% loss of capital when investing in a new stock, investors settle for low-beta laggards that rarely move. History suggests that's a mistake.

Consider SunPower (NASDAQ: SPWR  ) and SolarCity (NASDAQ: SCTY  ) , two titans of the solar movement focused on bringing photovoltaic power to residences around the country. Both stocks teeter around 4 when it comes to beta over the past year -- that is, they moved roughly four times the market average in 2013. They also delivered multibagger returns over the same period.

So stop ignoring high-beta stocks and start thinking differently about risk. Treat each stock you're interested in like the business it is. Study revenue, profit, and cash flow trends. Evaluate products and competition. Seek competitive advantages and then buy to hold for the long term. You'll end up with a better portfolio as you learn how to make volatility work for you, Tim says.

Now it's your turn to weigh in. What's the riskiest stock market bet you've made recently? Do you avoid or embrace high-beta stocks? Please watch the video to get Tim's full take and then leave a comment to let us know what you think.

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Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On February 01, 2014, at 7:28 AM, caaaad wrote:

    Jim is wall street and corporate greed. They want dumb money back so badly it's pathetic. They need someone to sell too. I'm a 100% out of stocks and I'm up 11,000 over 2 months. All I did is what Jim does, sell,sell,sell. Life is good as I'm not laying awake at night wondering if it will stop dropping. I will be back, when they are. Timing is everything inspite of their lies.

  • Report this Comment On February 01, 2014, at 9:37 AM, snickerdoodle9 wrote:

    Many investors call dividend stocks " boring " ..... As a retired long term investor , " boring " high yield dividend stocks ( diversified and reinvested ) have and continue to do me proud regardless of what the stock market does especially w/ days like yesterday and the volatility during the month of January . Not only do I sleep worry free , I continue watch the profits roll in non-stop .

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Tim Beyers

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at or send email to For more insights, follow Tim on Google+ and Twitter.

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