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Originally Posted by bdub
Thanks Dean.
Just a word on Beta. The level of Beta on certain categories of stocks will change drastically during a crisis. Many stocks will see large increases in the level of beta and as a result larger drawdowns than the market. During the GFC the beta on financial stocks increased drastically for obvious reasons. Individual investors typically are slow to react to these changes in beta as the market and individual stocks react to the crisis. Historical beta doesn’t predict future beta when crap hits the fan unfortunately.
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NO historical measure, growth, Beta, Alpha etc. predicts future behaviour. Yes there are events that can make a low Beta stock into a high Beta stock, and yes a real low Beta may just be an indication that the stock hasn't done anything for a long time. All that said, if you go into a major correction with a 2.0 Beta portfolio you are going to be one really unhappy camper because the Beta isn't likely to get better through the drop.
Guy can't look at just one or even a few variables to decide what a prudent portfolio construction is. If it was simple anyone could do it, and from long experience I can guarantee there are a lot less people good at it than bad at it. I can also guarantee that many of the so called professionals are almost as bad as the amateurs. Finding a really good advisor is like finding a B&C 200 point Typical Whitetail.