Investing Myths: Alpha and Beta

[hawk59]

Constantine,

Think of this simple scenario, and try not to confuse it by putting it in terms of greek letters. A company is liquidating, they've stated the total liquidation proceeds to shareholders will be in the range of $5 on the low end and $7 on the high end. The stock closes today at $6.50. Tomorrow morning a manager that has a big position in this stock is taking big losses in his other positions and gets irrational and decides to sell out his position in this company ASAP. During the day tomorrow the stock is trading at $5.50, down $1 from the close today.

What has happened to your risk, what has happened to your reward? If you can understand and believe this simple example, then that is all you need to be a good investor. Everything follows from the one fundamental concept.