I am relly struggling what Beta is all about in regards to making
investment decsicions. To be honest I don't understand the concept.

Could someone provide me with either a web-site or explanation as to
why Beta is important when evaluating investment decisions?

Thanks

Hi!!

Betas are used to measure how much a stock will move in relation to an
index (for example, the S&P500). It is, in some way, a measure of its
volatility and therefore its risk. According to Asset Pricing Theory,
beta represents the type of risk, the systematic risk, that cannot be
diversified away.
For example, an issue with a beta of 1.5 tends to move its value 50%
more than the total market, and in the same direction; another issue
with a beta of 0.5 tends to move its value 50% less, again in the same
direction. If an issue moved exactly as the market moved, its beta is
1.0. This means that a high beta is typical for a volatile stock, that
is more risky; on the other hand, low beta is typical of a stock that
moves less than the market as a whole, that is less risky.
A stock with a negative beta moves in the opposite direction that the
market does. With a beta of -1.0 a stock has the same volatility as
the market, but tends to rise when the market falls, and vice versa.
The element of risk implies some return for taking that risk. A risk
averse investor would prefer lower but consistent returns on his
investments, therefore he will prefer stocks with low betas.
A person avid for higher returns would take higher risks, so he must
invest in stocks that can change their values in a high rate than the
market does, that is portfolios with higher betas providing above
average returns.
The same is valid with the portfolios: the risk averse investor would
prefer that his portfolio not be affected by market movements, so the
beta of his portfolio must be as lower as possible. He would seek to
combine investments with low and high betas, so that his portfolio is
diversified and the
combination brings about a relatively risk free portfolio.


For references on the internet see.
"Beta: Why You Should Know What It Is":
http://www.investopedia.com/articles/01/102401.asp

"Beta: Know the Risk":
http://www.investopedia.com/articles/stocks/04/113004.asp

"A look at the beta":
http://www.thehindubusinessline.com/businessline/2001/07/02/stories/210201nr.htm

"Beta as a measure of risk":
http://www.thehindubusinessline.com/mentor/2004/05/31/stories/2004053100241000.htm

"BETA, Risk and Mutual Funds":
http://www.canadianfundwatch.com/modules.pdf?noredirect=1&name=News&file=article&sid=13



I hope that this helps you. Feel free to request for a clarification
if you need it before rate this answer.

Regards,
livioflores-ga

Great info. Thanks much!