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#1
04-26-2007, 07:04 PM
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Re: Investing Myths: Alpha and Beta
[ QUOTE ]
Beta is a measure of the "riskiness" of a particular portfolio's asset allocation. You claim that it is a myth that riskiness and earnings are even correlated. [/ QUOTE ] I don't think I even mentioned earnings. Most HF are, in fact, low beta, or less volatile. Virtually all of them, but of course not 100%. 
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#2
04-27-2007, 12:16 AM
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Re: Investing Myths: Alpha and Beta
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.
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#5
04-27-2007, 02:43 PM
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Re: Investing Myths: Alpha and Beta
[ QUOTE ]
[ QUOTE ] risk has decreased and rewards increased? holla if i go on to become a good investor. [/ QUOTE ] you are well on your way, just be patient! [/ QUOTE ] I'm not following so much. Rephrase this in moran terms. Today it seemed an investment is -EV while tomorrow after the price moves to 5.50 its +EV.
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#6
04-26-2007, 05:03 PM
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Re: Investing Myths: Alpha and Beta
The attempt to debunk Myth #2 was amusing. Try again.
(indexer)
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#7
04-26-2007, 05:20 PM
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Re: Investing Myths: Alpha and Beta
Looooove no substance posts.
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#9
04-26-2007, 07:07 PM
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Re: Investing Myths: Alpha and Beta
Interesting stuff, Naj, I might tried to read some of this closer later on. I sort of agree with what you are saying in theory, but I'm not sure if it applies to 90% of the population (and hence the popularity of index funds). I'll just use a couple of examples.
Take Jon Corzine. I assume he doesn't manage his own money now (at least at the level of details) now that his is governor (and for the moment, in the hospital). But I think what you are saying would certainly apply to him. He knows who to give his money to (who has talent and can be trusted) and he has enough money that he should get a good deal -- he won't pay $1 for $1 of alpha, he'll pay 30 cents. But take somebody with out Corzine's knowledge of Wall Street and with a mere 200k of assets. Can they really get any sort of alpha? Problem #1 for them is going to be how they figure out who can make the alpha in the future given they don't know much about the market. Problem #2 is what they are going to pay for that alpha. Assuming they aren't going to give more than 25% of their money to a hedge fund, what kind of hedge fund is really going to be interested in 50k? I'm mean sure, someone will take it but after 2 and 20, what is left? And sure some of this you can do yourself, but you have to be smart, knowledgeable, and spend the time. Yeah, you can go long this and short that on the basis of high beta/low beta, but how do you know which is which? I mean, take what you are saying about the corporate spreads. I think it's fairly accepted that spreads aren't big enough now but maybe in two years the opposite will be true. Sure, that's exploitable in theory in either direction, but not in practice by your average investor.
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#10
04-27-2007, 05:01 PM
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Re: Investing Myths: Alpha and Beta
[ QUOTE ]
Interesting stuff, Naj, I might tried to read some of this closer later on. I sort of agree with what you are saying in theory, but I'm not sure if it applies to ... Sure, that's exploitable in theory in either direction, but not in practice by your average investor. [/ QUOTE ] It would equally be a myth to say 'Every investor can capture alpha' or 'all managers generate positive alpha,' like a poker game, Alpha is zero-sum, not everyone can create/retail positive alpha, I totally agree. However, plenty of public managers/investors generate alpha, and have been doing so for 2-5 decades.
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Hybrid Mode
