Over the past year, we've seen unprecedented levels of volatility in the stock market. Last week, Fool guest contributor Brad Hessel broke the data down:
In 59 years, there were a total of 14 days in which the index moved up or down 7% to 9%. Six of those days were in 2008 -- five of them in the fourth quarter alone. In a "normal" quarter, the index moved less than half a percent up or down on an average of 32 or 33 trading days. In the fourth quarter of 2008, there were only four such days.
Today, I thought it would be instructive to review the market's 10 most volatile stocks over just the past year.
Before we get to the list ...
Let me just say that for purposes of this screen, the proxy for "volatility" is "beta." Beta isn't quite the same thing as volatility, but it will suffice for our purposes.
A quick refresher: A beta of 1.0 means a stock moves in lockstep with the S&P 500 (the normal standard for "the market"). If a stock has a beta higher than 1.0, it moves more than the market on the upside and on the downside. A beta of 0.5, then, means the stock is half as volatile as the larger market.
Here are the highest-beta stocks of the past year:
|
Company |
1-Year Beta |
1-Year Price Change |
|---|---|---|
|
Las Vegas Sands |
4.11 |
(89.5%) |
|
Fannie Mae |
4.10 |
(97.1%) |
|
Hertz Global Holdings |
4.01 |
(37.1%) |
|
DineEquity |
3.99 |
(49.2%) |
|
Citigroup |
3.68 |
(87.6%) |
|
Century Aluminum |
3.55 |
(94.5%) |
|
Genworth Financial |
3.43 |
(90.9%) |
|
Avis Budget Group |
3.41 |
(81.5%) |
|
MBIA |
3.40 |
(52.7%) |
|
Lincoln National |
3.34 |
(80.4%) |
Data from Capital IQ, a division of Standard & Poor's. Results exclude companies with market capitalizations below $200 million.
What we can learn
As long-term-focused investors, we Fools tend not to read much into a short-term volatility measure. But there are two key points about the information above:
- If you try to "play" these stocks, you could get burned ... badly. They tend to move dramatically, often more on news or momentum than on changes in fundamentals. Retail investors should tread cautiously.
- If you believe you've spotted an undervalued company with a high beta, keep your perspective (i.e., time frame) and practice patience and discipline. You may have to ride out excruciating short-term volatility, so be prepared.
One last thing: As fund manager and investing guru Ron Muhlenkamp says, "For most people, 'The Game of the Stock Market' is a distraction which prevents them from making money in 'The Business of Investing.'"
Don't let wild price swings distract you from the business of investing.
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