Add a little Beta to your Kopi O (Part 2)

Continuing where we left off, lets look at a small portion of the betas

A beta of "1" means that the market affects the stock about a 1:1 ratio.  For example, BAT and CIMB have a beta that is close to 1.  This means if the market is up 1 percent, these stocks will likely follow 1 percent and vice versa to the downside.

Hlbank has the lowest beta of 0.227 followed by Ambank with .646.  This means that they are not as affected by the market for some reason or another.  Market movements don't move the stock as much.

The higher betas stocks like Genting Malaysia with 1.676 means if the market is up or down 1 percent, the stock will probably be up or down 1.8 percent.  The stock movements are amplified by the market's movement.

So now we have had a run down of the betas how do we play defense?  I'm sure many of you are thinking, I own 20 stocks.  Which one do I sell when the time is right?  Geez. I can't sell all of them.

We start with looking at what stocks we own and determine the beta.  If the stock has a high beta, you would want to lighten up on those stocks.  If the market would turn lower, the downside move could be strong and swift, thus affect your portfolio value.  By the same regard, high beta stocks can amplify returns and market bottoms.

So, if prices are getting to out of line to the top side, Look at unloading the high beta stocks first!  But defense involves more than just selling betas.  We'll take a look further at what stocks you should keep and sell in the next post.

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Add a little FBMKLCI Beta to your daily Kopi O (part 1)

The FBMKLCI is the benchmark for stocks in Malaysia.  It's made up of the largest 30 Malaysian stocks by valuation as deemed from the FTSE in England.  The benchmark was born to cater to international investors who are looking for modernized benchmarking some years ago.

Looking at the chart,  the market is currently rising,  and what goes up does come down eventually as people see valuations are too high.  In sports we use a very simple analogy, offense wins games, defense wins championships.  So we are going to learn to play defense first.  Selling.

Listed below are the Betas for the last three months of FBMKLCI stocks.  What is the importance of betas?  The beta tells us how likely the stock will move when the overall market moves.  Higher beta means more likelihood of stocks moving as the overall market moves up and down.

I've had difficulty finding the correct betas of stocks as sites usually don't provide such data, but I've decided to manually calculate and share the betas for everyone as a reference.  Of course, its always good to double check as I've used an excel worksheet to calculate the betas.  But this is better than none.  The Betas are based off of January 21 to April 24th daily data.

Stock              Betas

ambank	0.646
astro	1.22
axiata	0.283
bat	0.92
cimb	1.149
digi	1.247
fgv	1.47
genm	1.676
genting	1.206
hlbank	0.227
hlfg	1.578
ihh	1.6
ioicorp	1.147
ioipg	1.424
klk	1.13
maxis	0.654
maybank	0.901
misc	0.395
pbbank	0.52
pchem	0.463
petdag	0.652
petgas	1.022
ppb	1.343
rhbcap	0.602
sime	0.684
skpetro	1.21
tenaga	1.731
tm	1.367
umw	0.881
ytl	1.131

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Welcome to Kopi and Stocks!

Everyone needs a jolt of caffeine to help them get inspired to select strong stocks.

Hopefully I can help lubricate the thought process with a blend of market comments, a splash of technical analysis, and an insightful look into fundamentals.

Stocks aren't for everyone, and not everyone should choose stocks.  One thing i hope to inspire is original thinking.  Too often we are told this is what matters, but the truth is far from it as far as investing and trading are concerned.  Being an original thinker is rewarded especially well.

                                           

Get your thinking cap on.  We're going on a ride.

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