The benefits of low-beta investing, high-beta trading

by Michael Tarsala

The folks at Business Insider write that Dylan Grice at Societe Generale, known for his essay on the benefits of being a boring investor, has a “new” model based on an old strategy:

Buy low-beta stocks that pay sustainable dividends.

Grice has done the math. It shows that dividend yields are the biggest drivers of stock returns going back more than 40 years.

It speaks to the benefits of finding under-loved companies with the balance sheet strength to keep paying dividends over the long haul — not necessarily stocks that move the most.

 

For me, there are two takeaways:

 

Low beta works for the long term

If you aren’t utilizing this strategy already, take a look at the benefits of low-beta investing. Studies suggest it’s a way to beat the markets, and it can produce higher returns than high-beta investing with less risk.

You can read more from Bill DeShurko, manager of the Dividend and Income Plus Model (also check out the nice Sofia Vergara pic).

He says he owns nothing in his Covestor model right now that is more volatile than the market, based on stock beta.

Other models that tend to include low-beta dividend stocks include the Domestic Dividend model run by Harvest Financial and the Dividend model run by Atlantic Investment.

 

High-beta may be best for trades

It can be very tough to sit through the ups and downs of high-beta investments. Especially if you are not being compensated for taking on the added risk.

That said, I think one of the best ways to play the high-beta stocks is as trades, ranging from several days to as long as three weeks, when the technical risk-reward is favorable.

That speaks to the strategy employed by manager Mike Arold, manager of the Technical Swing model.

Arold is beating the market so far this year with swing trades — as he did last year.

But what is more impressive to me is that Arold is doing so with a lower maximum drawdown than the S&P 500.