Re: Cost of equity
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This is wrong. There is no way "the index" is always less risky than an individual stock.
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In general, the risk in owning an index is less than the risk of holding a single stock, due to diversification reducing the overall risk!
That said, some indexes are overdiversified, and you can achieve similar diversification risk reduction by holding a few select stocks.
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Okay, in general it may be true, but not often enough to make the blanket statement that indices are less risky than stocks.
The beta of a market is 1, it is not true that no stock's beta is <1.
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I made post awhile back about evaluating the risk in investing all of ones money in a particular stock. FatOtt and I had a good exchange of views on what I wrote. I know you know this already but for others that may be following along in this thread, since individual company risk can be "diversified away," there is no risk premium for assuming individual company risk. To use my MREITs and Gold stocks example again, these stocks generally speaking have low betas but there is no way in the world that these stocks are lower risk than something like SPY. This is due to the fact that these stocks have low R-Squared values which mean that they're not highly correlated to the overall market and thus the beta's are a poor measure of risk.
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