Bank On High Beta Stocks For Faster Recovery

The markets are up by more than 25 per cent from the lows posted in March 2020. This movement has indeed come as a surprise to market participants not just for the fact that the markets have bounced back but for the speed of recovery. However, in such a situation, investors lose focus and ignore the basics of how the markets function. As Geyatee Deshpande explains, it is the high beta stocks that have the capacity to recover faster

- Geyatee Deshpande

There is an old saying: “Higher the risk, higher should be the expected returns in the equity markets.” This quote can be interpreted in several different ways by different investors. But on a more practical level, what happens is that the minimum returns go to passive investors who have safety on their agenda and would not like to be the cheerleaders of market volatility and variability. Maximum returns are realised by those who observe the market moods closely and are alert while exercising their intelligence and investing skills.

One may thus notice that mere high risk-taking activity does not guarantee maximum returns contrary to the simplistic view of greater the risk, greater are the returns, as followed by several novice investors. The returns will be maximised if the game of portfolio management is understood holistically and enough skill is possessed by the investor to manage the portfolio in such a way that returns are optimised.

Understanding the role that the ‘beta’ of a stock plays in managing a portfolio is crucial for investors to stay in the game longer and harvest profits. In fact, managing the beta of the portfolio skilfully is crucial to ultimate success in the markets.

Importance of Beta