“However… I’m looking at unlevered/relevering Betas for thinly traded/nonpublic companies and I don’t understand how to memorize the following: public Beta * 1/(1+D/E) = unlevered Beta. Theoretically that makes sense but I still feel like I have to memorize the 1/(1/+D/E) part… any tips?”
The way I try to remember this one is treat the formula as (1+D/E) as the “leverage factor” which you need to memorize. Then treat the formula as Public Beta divided by the leverage factor = unlevered Beta. Then it’s easy to think of and you can use it to re-lever the beta as well as long as you remember the “leverage factor”. Then it’s a smaller thing to memorize and you can still understand how to reason your way through the formula. On Level 1 I never made a conscious effort to memorize formulas, it’s all about understanding them.
As far as the beta one, I wrote my Honors thesis on that so I know more then enough about how it’s done and why. But the logical reasoning is that betas tend to trend towards the grand mean of 1 over time, so it adjusts the raw beta down to be closer to one. For example if the raw beta was 3, the adjusted would be (3*2)/3 + 1/3 = 2.333. If the raw beta is close to one it doesn’t move as far as that would. So if you understand the reasoning just remember that it gives more weight to the “beta” then it does to “1” Again, this is another one where if you understand the concept you’ll fare better than rote memorization.
