Alan Greenspan, the Federal Reserve chairman from 1987 to 2006, died on Monday at the age of 100. Most of the media’s obituaries are flattering to Greenspan, but many seem to omit his most enduring contribution to financial markets and investors. Simply, when markets are at significant risk or breaking down, the Fed will step in. In market lingo, this is known as the “Fed Put.” This belief, which has instilled a sense of fearlessness in some investors, remains deeply ingrained in many investors’ mindsets and is as powerful today as it ever was.The Fed Put was introduced with the failure of Long-Term Capital Management (LTCM) in 1998. LTCM was a hedge fund run by Nobel laureates that nearly took down the global financial system through massive leverage. LTCM’s bets threatened not only the hedge fund but also some large banks and potentially the stock and bond markets. Greenspan helped orchestrate a private-sector bailout, cut rates by 75 bps in six weeks, and assured Wall Street that the Fed would supply as much liquidity as needed to restore calm. It worked. The lesson the market took from that episode was not “leverage kills.” It was the birth of the “too big to fail” mantra.That lesson has been applied in every market and financial crisis since. From the dot-com bust in 2000 to the Financial Crisis in 2008 and COVID in 2020, the Fed stepped in with overwhelming force. Greenspan’s logic built what we believe is his biggest legacy in today’s markets. It is the assumption that the Fed is always the buyer of last resort.Can We Trust Beta?A stock’s beta measures how much a stock’s price or a portfolio’s value tends to swing relative to overall market movements. Frequently, investors use Beta to assess the risk of a stock or a portfolio of stocks. For instance, they may reduce beta when they think the market is peaking or add beta when they think it’s troughing. While beta is very useful, it can also be very misleading. Let’s explain.Beta can be measured using daily, weekly, or monthly pricing. Furthermore, it can be measured over short, medium, or long-term horizons. To show how it can produce divergent results, we examine the betas of Micron (NASDAQ:MU) and Procter & Gamble (NYSE:PG) across three price frequencies and three time horizons. As the tables below show, Micron has a beta ranging from 1.82 to 5.39 depending on the time frame and frequency. While beta is correctly telling us Micron is likely to be more volatile than the market, it is not great at helping us appreciate how much more volatile. PG has a more stable beta, but it too varies. Does it have a slightly negative beta as the daily/1yr shows, or is it roughly in the lower .40s?The point of this exercise is to show that, when using beta, we should look at it through different time and frequency lenses to capture a range of potential betas. Moreover, consider that new factors may cause the stock or portfolio to react differently to the market than it has in the past, which, to some degree, negates the historical beta readings.Tweet of the DayOriginal Post