Infamous bank robber Willie Sutton was once asked by a reporter: "Why do you rob banks?" His iconic response was: "Because that's where the money is." While I don't recommend robbing banks, I do recommend that you adopt a similar mind-set when it comes to trading. Let me explain...
Beta is a measure of volatility. It tells you how much a stock moves relative to the broader market indices. A stock with a beta below one is less volatile than the market, a stock with a beta of exactly one is exactly correlated to the market, and a stock with a beta of greater than one is more volatile than the market.
If you are a conservative long-term investor, you may gravitate toward low-beta sectors like utilities and consumer staples. I believe active traders, however, should focus more heavily on high-beta stocks (which are found most often in high-growth sectors like tech). Why? Because as our friend Willie Sutton put it so eloquently: "that's where the money is."
If you are an educated and seasoned active trader, I believe you should consider volatility your best friend. If you aren't properly trained to trade high-beta stocks, though, they can be your worst enemy. While high-beta stocks carry greater potential reward, they also come with an equally greater measure of risk. To use another metaphor, you don't try to surf the biggest wave in the world without building your skills up over time. If you do try, you will almost certainly fail, and there is a strong possibility that you could drown.
I focus almost exclusively on trading high-beta stocks because I am confident in my ability to carve money out of them using a skill-set I've honed over my 15-year trading career. On Thursday, August 1st, I am going to share the core principles of my strategy in a free T3 Live webinar: How to Trade High-Beta Stocks the RIGHT Way. Register here for the webinar.
I look forward to seeing you at next Thursday's webinar, and feel free to reach out with any questions to firstname.lastname@example.org.