Why You Should Buy Low Volatility Stocks

For some time now, tech stocks have led the market. Among their distinguishing characteristics: high valuations, often with price/earnings ratios well north of 20, and high betas, which measure volatility—anything above 1.0 is a high beta stock. For instance, the most highly valued stock in existence, Apple, has a P/E of 31. The iPhone maker has a beta of 1.23. Celebrated chipmaker Nvidia, benefiting from its links to artificial intelligence, has grown even faster and sports a 118 P/E and a 1.75 beta.

The trouble with high-growth, high-volatility stocks is that they sometimes have scary flameouts. And when they drop, as they did spectacularly in 2022, they really drop. The S&P 500 dipped 19.5% last year, but Apple was off 26% and Nvidia plummeted 50%.