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Investing in stocks and shares can be one of those pastimes when you put your finger in the air and wonder which way the wind's blowing. It may work sometimes, but it's also good to have in your arsenal some tools that can help in that fateful investment decision. So, what tools? Well, one that has some positive vibes going for it is Beta. What the hell is Beta? Beta measures how volatile a share price is in relation to its market. The market has a Beta value of 1. If a share price is more volatile than the market its Beta is above 1, if a share price is less volatile than the market its value is less than 1. Riskier shares are supposed to have a high Beta.
Looking at percentages, a share with a beta of 0.75 is likely to rise or fall 0.75% if the market rises or falls 1.00%. Low-beta shares are also called defensive stocks because investors like to hold them when the market is on a downtrend or is particularly volatile. High-beta shares tend to be favoured when the market is rising steadily and investors are happy to take greater risks in order to maximise returns.
So let's take a look at practicalities. Utilities are considered, by and large, safe and solid investments. Sure enough, the Beta value of UU.L reflects this at 0.6739. Vodafone, maybe a little more risky but by no means a racy investment, comes in at 0.8613. Now take a look at Fastjet, a Tanzanian airline registered on the LSE. Some 18 months ago it seemed like this airline could do no wrong. Its load factors were bursting, utilisation rates and ticket sales and prices were sizzling. Fast forward, and we find the Tanzanian economy on the floor with consumer demand sliding down a hill, lower oil and commodity prices. The Beta for this company is 1.0672. So don't just put your finger in the air, use tools and research like it's going out of fashion. In the end of course it's your choice, but remember Caveat Emptor!

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