Beta

The ValueModel tests whether your input for beta is “correct” according to our framework and suggests you change the number if found to be wrong.

The A. Stotz framework suggests choosing 1.25 for historical betas of 1.15 and higher, choosing 1 for historical betas between 0.85-1.15 and choosing 0.75 for all historical betas below 0.85. In case there is no historic data available for beta, please justify your choice in the comment section. The reason for this is A. Stotz Investment Research’s research on beta (see link below).

Related “Common valuation mistakes” articles

Using the wrong beta

Using the historical or too high/low beta: Before we start: High risk doesn’t mean high return. Furthermore, using the historical beta is likely to be incorrect. At A. Stotz Investment Research, we recently tested what happens to beta over time among an average of 10,000 stocks around the world. The findings imply that when you value stock with a historically low beta, a good beta estimate would be about 0.7x and for a high beta stock about 1.1x. When a stock historically has had a neutral beta of 1x or you are forced to make a guess about beta without any information, your safest choice would be to set beta to 1x. For exactly this reason we recommend a beta-range of 0.75 to 1.25. A. Stotz framework suggests choosing 1.25 for historical betas of 1.15 and higher, choosing 1 for historical betas between 0.85-1.15 and choosing 0.75 for all historical betas below 0.85.