The article titled “The Right Time to Buy High-Beta Stocks” published in the Wall Street Journal covers the issue of high-beta stocks and the four weeks of the year when they significantly outperform low-beta stocks. Hulbert (2020) explains that beta refers to the tendencies which a stock shows when the broad market rises and declines. The higher the beta is, the more the stock price changes compared to the market average.
It is generally believed that higher risks are to be compensated by high gains in the long run. Nevertheless, studies mentioned in the article prove that there are only four weeks a year when it is beneficial for an investor to hold high-beta stocks. Moreover, in order to get substantial revenues, one should not simply hold the stocks but also trade them actively during the week. The weeks that are mentioned in the article are each corporate-earnings season’s first week, as investors during those periods pay special attention to the overall state of the economy. Thus, the performance of large-cap companies virtually predetermines the price of high-beta stocks. Nevertheless, the author of the article notes that these large corporations, even the blue-chip high-tech companies, can actually reveal poor data that points to subsequent gloomy quarters. Therefore, investors should be especially careful about their high-beta stocks in the week which is scrutinized in the article – the week of October 19.
High-beta stocks can prove to be beneficial for investors, as high gains follow even slight market average growth. Nevertheless, the emotional factor driving investors to take the risk is a serious issue. The research data that is described in the article can serve as an important guide for investors during these turbulent months before Election Day. The information provided in the article is closely related to the chapter and allows for a more comprehensive understanding of one of the complex terms from the book.
Reference
Hulbert, M. (2020). The right time to buy high-beta stocks. The Wall Street Journal. Web.