Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance Dear Reader, Yesterday the markets dropped all of 1%, and the panic headlines started rolling in. The sky is falling. The bubble is bursting. Or whatever fear-based news angle you might've seen. Let's pump the brakes for a second. First of all, I'm not panicking over a 1% move and neither should you. In fact, when the markets move down, I start rubbing my hands in anticipation. Let's face it... if you're panicking over a 1% move, now is a good time to look over your portfolio to see if it passes the "Beta Allocation" test. What "Beta" means in the context of portfolio allocation Beta measures how sensitive a stock (or a portfolio) is to movements in the overall market – usually compared to the S&P 500. Think of it like this... Essentially, the major market average is a "1 beta." So if your portfolio is down 1% when the markets move down 1%, then you're perfectly correlated to the major market average. Overall, your portfolio should be down anywhere from .75 to 1.5% when the overall market average drops 1% depending on your weighting of risky assets to non-risky assets. If that's you – then congratulations – you passed the beta allocation test. However, if your portfolio is down more than 5% after a 1% down move, then you're in the wrong stocks. Of course, there are some exceptions to this rule. For example, if you had a stock that's getting hammered because of an individual catalyst like earnings, then your portfolio is going to be down more on that specific day. But if your portfolio is constantly down 5% every time the market moves down 1% – that's not good. Imagine if the market corrected 20% instead of 1% – you're going to get absolutely hammered. | 
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