Why Economics Doesn’t Teach How to Pick Stocks | Peter Jacobsen – Foundation for Economic Education

by | Dec 14, 2022 | Financial

This week I’m answering an interesting question from Bruce from Fort Lauderdale. Bruce has a finance question. He says:

“Let’s discuss beta: Why isn’t beta separated into upside beta and downside beta? As you know, a stock which rises and falls the same as the market has a beta of 1. Consider another stock which, when the market rises, rises twice as fast, but when the market falls, falls by the same percentage as the market. I am taught that this stock has a beta > 1, so it is considered riskier than the market as a whole. In my opinion, that’s ridiculous. I suggest that this stock has an upside beta of 2 and a downside beta of 1. As demonstrated by this example, do you agree that the currently accepted concept of beta is flawed?”

I will weigh in, but I wanted to use this question as an opportunity to highlight some of my limitations in terms of what I can answer. Specifically, I can’t give investment advice. I’ve had a few emails from “Ask an Economist” readers who want to get my advice on their retirement strategy or portfolio. I’m no help on this.
There are two major reasons why I can’t give investment advice.
First, there’s probably liability associated with me using a large platform like FEE to give financial advice. I’m a p …

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