Wend 2. Stocks you Can buy k forget about By Ankur Warikoo 4 Two important metrics — ALPHA =& BETA —> every stock's performance is compared to the overal) performance of all tne stocks (called index) aS Low risk —* low returns high tisk —> high returns — Alpha & Beta help in understanding whether +o buy a stock for long teym or not. @g) Index — 207 ft Stock — 2S/% (vetorns) ‘Difference b/w = Stock beats tne mkt by ef Stock return % index if K=0 if k>0 if AL0 » MO growth in the stock » stock beats the mkt » Sbock's retvrn is less than the index — > people who begin to invest ~ only focus on ‘o' i-e- the vetvrn they're getting w/0 considering beta , B. — * BETA- measurement of volatility or risk Index graph is assumed to be Beta of 1. —> if your stock is more volatile than the index ie., i goes up with the same speed as it comes dow eg) mkt — 57 then your Stock — 1074 &k mkt - S/ 4 then your Stock - 10/4 Page 4oth = B => He (more yisk) [more return) | iwips too consider both the metrics. or bp =s= JK (Less rick) (Less return) # 2x2 Matrix to understand this concept — Concepts CALRHAD X AXIS = ) 0 tl : lessey returns more return than stock aman stock market Market (BETA. >1 — higher risk than the mkt | — same risk as the stock mkt <1 —> less tisk than the mkt y Axis = Long term stocks = Minimum Risk & Maximum Return i-e., lowest beta k highest alpha Matrix (PT 0.) Page 2Wig | 5 Not recommended for Long — needs active trading — based on momentvm — bovght by day - traders strategy for shore term gains BETA [va = doesn't beat $+ blah returns, eumiaiep 4B > low visk AP - less risk — Passive trading low —> Not recommended for long term — vsvally bought -for —» Recommended for long term —> check after every 3 montns low high gui — Passive trading — strategy to maximize vetvrns by minimum buying & selling #F How to pick Stocks Which generate nigh returns with low risk? check video - |): 45 ~ platform: tickertape screener Filter — 4ve vevenve growth), alpha, beta = check B #0 be b/w 0 1 for minimal risk — Sort by market cap - (large cap) export to excel — Sort by max alpha, lowest beta t Page 3— Figuring ove: Which stocks ton buyT= — OM excel, plot a Scatter graph Beta pha — look for max alpha — eee shoud be around 4 ie: similar to the mit ~ check for alpha x beta on the graph —_Seviteria - go back to the screener to check the stock performance (price chart) # SUMMARY — We best way to select stocks for long term Investing with minimum risk — the returns are higher than the stock market © Geka = shane AAD, ie sinitar to te martee — Aipha ® beta — vseful in investing, bvt can also be used +o Osk yourself -jf T want to do 'x' — what is the growth (alpha) ~ What is the risk i'm taking (beta) Page 4