Zesty Wrote: ------------------------------------------------------- > @jcole21, good anecdotal example here. CF has near > zero debt to equity (0.002) with a beta of 0.83 > while SYBT has d/e of 0.74 with a beta of 0.41. > According to you this should not be correct? nobody ever said such scenario can’t exist, smarta$$. the equity betas are simply not comparable because of the two companies’ differences in leverage. to compare them, you need to unlever both betas using Hamada or some other formula, or, alternatively, unlever one of the betas, then relever it using the capital structure of the other company. unless you do that it won’t be apples to apples, what’s so hard to understand
@artvandalay, Actually I do and I’m finishing up my MSF! Ao obviously, I take a more academic approach (no assumptions, only facts)!
Zesty Wrote: ------------------------------------------------------- > @CF_AHHHHHHHHH, That’s exactly what I was saying > but these idiots weren’t catching on! They > insisted that betas across sectors could be > determined by debt levels! no, that’s not what you were saying moron. the orignal question was about comparing the equity (levered) betas of yahoo and google, and bchad correctly pointed out that one source of the difference could be the difference in the financial leverage between the two companies. to make the comparison between the betas of yahoo and google meaningful, you must unlever them both or do what CF_AHHHHHHHHH said - unlever one, then relever it with the other company’s financial ratio. then you jumped out of somewhere and told bchad that betas are unaffected by debt levels? you’re a clown
@Mobius Striptease, now you finally understand! This discussion (which you jumped into the middle of without fully understanding the basis) was in reference to leveraged betas and leveraged betas alone. Not a hypothetical un-leveraged beta.
@Mobius Striptease, unleveraging betas gives you a hypothetical number that has no meaning significance. Anyway, I’m done with this thread wasted the last 30 minutes of my life!
Post #2 in the thread: bchad: “Also, yahoo and google may have different debt levels, which also affects beta.” valid and true statement - dont just compare levered betas between 2 different companies without considering the individual financial leverages of these companies. Post #3 in the thread: Zesty the Clown: “Beta is not affected by debt levels; unless I was asleep in Risk Mgmt class.” does it get any clearer than this who the complete moron is here?
Wow Fox News, way to leave of the rest of my quote where I clearly stated that “If you are referring to some indirect relationship between debt levels and stock price movements, please explain?”; Directly there are no inputs for leverage to calculate beta, indirectly is another story.
I was referring to facts in my posts, and I think we can all agree with another fact - you don’ know what the hell you’re talking about
“It’s pronownced ‘Jin-jerw-Awhl’! Get it white!!!”
Wow again, Master of the Obvious. you recently learned in your MSF class how to download some stock prices and index levels in a spreadsheet, take the log-return and then calculate the beta coefficient for the stock by doing a simple linear regression between the two series. awesome, and the financial leverage was never an input into that calculation - all you need is the stock price and the index level. sweet, so beta doesn’t depend on financial leverage then cause you have “academic approach”? hell, beta doesn’t seem to depend on revenue either, cause we didn’t plug in the company’s revenue in that calculation. do you have any idea what the hell you’re talking about? why not follow the earlier advice that someone gave you to “stop it” but keep digging yourself into a bigger hole of bull$hit?
@ Mobius Striptease, you can tell when someone is losing an argument, they start insulting the other person. All I’m asking for is data that supports your theory of there being a relationship with stock volatility/price movements and leverage (all I want is data; is that so hard to ask for)
@Mobius Striptease, what are your credentials?
Wow, this thread has taken on a life of its own. Zesty, I think you are trying to defend that you said something correct. I’m sure there is something correct in what you said, at least somewhere, but it is pointless to try to defend the position that beta is not affected by a company’s leverage ratio, because it is. Apple has virtually no debt on it’s balance sheet, and yahoo reports its beta as 1.5. There are many benchmarks and timeframes you can use to measure beta, so let’s just assume that the 1.5 represents a reasonable time frame and the S&P 500 index. If Apple now changes its capital structure to be 50% equity and 50% debt - let’s assume that they float 1/2 of their assets as debt and use the proceeds to buy back shares, so that the rest of the company statistics are constant. If that is the case, then the beta should rise to about 3. Levered Beta = Unlevered Beta * (1 + (D/E)*(1-t)) I’m not 100% sure why it’s the after tax debt burden is included there, instead of the total debt burden, although that’s what the formula says. I could probably go re-learn that, but it would be a detail, rather than the main point. You also try to defend the idea that Unlevered beta is some kind of fictitious number. If you are willing to say that beta is fictitious in general, then I will agree with you. But if you hold the position that levered beta is real, because we can observe it, and unlevered beta isn’t because we have to use math to figure it out, then your position is untenable. Unlevered beta has a real meaning, which is: what can we expect a stock’s beta to be if the company has no debt at all. Apple has virtually no debt, so it’s observed beta is virtually the same as the unlevered beta. Another real meaning for unlevered beta is the amount of market risk that comes from the *operations* of the company. i.e. business risk. Any observed (i.e. levered) beta that is larger than this number represents *financial* risk. So, back to the question of why Google and Yahoo have different betas. Beta can differ because 1) The correlations to the market are different (this is less likely if the companies are in the same industry). 2) The relative volatilities are different SD(Yahoo)/SD(Mkt) <> SD(Google)/SD(Mkt). A corollary is that if SD(Yahoo) <> SD(Google), then the betas should be different even if the correlation to the market is the same for each. Additional debt directly influences the SD of an company’s stock, in the same way that buying a stock on margin will increase the SD of your equity returns.
Zesty Wrote: ------------------------------------------------------- > @ Mobius Striptease, you can tell when someone is > losing an argument, they start insulting the other > person. All I’m asking for is data that supports > your theory of there being a relationship with > stock volatility/price movements and leverage (all > I want is data; is that so hard to ask for) i’m hoping your MSF degree stands for Masters of Science Fiction. also, insulting people on the web especially when they are saying stupid things and refusing to back down, and argue for the sake of argument, is a lot fun. don’t take it too personally man, you might be a nice guy in general but you are Zesty the Clown in this thread 
it is not my theory that the presence of fixed costs will increase the variability of the returns, it is common sense. and that’s what the leverage burden will do to a company’s stock. no i won’t bother giving you data, that’s ridiculous. have a nice day!
Exactly, I’m sure that’s how they make business decisions at your office, with no data! I don’t think there is a direct correlation between a stock leverage and it’s beta as there are so many factors that go into a stocks price; that’s my point. I’m not sure what’s clownish about that. FYI, you can’t give me data because you don’t have any!
If there is then you should be able to employ a long straddle with highly levered companies and make out big.
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Oh my god. Keep digging yourself deep Zesty. You obviously haven’t passed level 2 because beta is directly related to a companies leverage. And why would he go around collecting data for you, he’s right, that is nuts. And nice jab with the ‘make business decisions at your office’ bit, are you 12 years old? Please stop posting.
Oh my god. Keep digging yourself deeper Zesty. You obviously haven’t passed level 2 because beta is directly related to a companies leverage. And why would he go around collecting data for you, he’s right, that is nuts. And nice jab with the ‘make business decisions at your office’ bit, are you 12 years old? Please stop posting.