Risk - the most difficult to quantify element (I)

Risk is perhaps the most debated, theoretical, difficult to quantify element of all. There are many types of risk in the business and investing world.

Investment books mention high beta stocks are riskier and low beta stocks are safer. However, beta is relatively meaningless for value investors. Why?

• Because it measures the fluctuation of stock prices.
• As a value investor, you aren't concerned with stock price fluctuation, only whether the stock price is a bargain compared to long-term value.
• Value investors ignore the type of risk measured by beta.
• They're more interested in how the company performs, not how the stock performs relative to other stocks.

Beta is useful only in the sense that higher price volatility for an issue may reflect underlying uncertainty in the company itself, such as with many of the higher flying tech stocks in 2000 and 2001. But the risks associated with these stocks become apparent long before you examine beta.