Lots of very smart people, often savvy investors and experienced executives, tell me they would never buy an airline stock. “Lunacy!” they cry. “It’s a terrible industry and companies continually burn through investors’ capital.” And that’s all true.
But there are two very good reasons why people do buy airline stocks:
–They are extremely volatile, so you can make a lot of money correctly playing the cycles.
–They are a very good hedge against high oil prices.
Reason 1 simply says these are volatile, so if you can forecast them, they are good investments. An investment ploy for suckers if there ever was one, why high volatility assets tend to have negative returns.
Reason #2 made me do a double take, but means to say they are hedges against declines in oil prices. Supposedly, one needs to hedge this bit of good news, because one is generally long oil. But as the US is an oil importer, I would think on average, the stock market's beta against oil is negative. That is, if oil is trading at $100 next year, that would be good for equity markets, not bad.
Would scanning for the lowest beta members of the sp500 be a useful proxy for the retail person attempting to implement your idea?
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