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.

Six ways to get your next multibagger
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


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

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • 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 .

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2819962, ~/Articles/ArticleHandler.aspx, 10/24/2014 9:37:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement