No, the title isn't suggesting the optimistic type of investing; but bull as in baloney. Beta has its uses and limitations. First, let's be clear about what beta is - and isn't. Beta is a measure of volatility of a stock as compared to the market. Sometimes the entire market is teetering on the edge so it is only natural that most stocks will follow suit. On the other hand, if the market is purring right along like a well oiled machine and a given stock is sending off volatility signals that look like an 8.0 on the Richter scale then an investor has the right to expect dramatic reward for that risk.
Now for what beta isn't. Beta isn't a predictor of future risk. By its very nature, beta uses historical measures and then describes the current situation. Beta also isn't good at tracking upward or downward volatility.
Once you understand beta then it is a useful tool.
- Stocks with beta greater than 1 indicate greater risk and price volatility than the overall market.
- Stocks with beta less than 1 indicate less risk and price volatility than the overall market.
- Stocks with a beta of 1 approximate the risk and price volatility of the overall market.