Investing Myths: Alpha and Beta

[DespotInExile]

Naj,

I essentially agree with your post, even though I am a strong advocate for indexing. The reality is that most investors lack: (a) the ability to evaluate whether a manager is likely to be capable of generating alpha; or (b) access to the alpha-generating strategies employed by SAC, Caxton, wherever.

Thus, for investors who are neither high net worth nor financially sophisticated, index investing with periodic rebalancing of a sensibly diversified portfolio w/ minimized internal correlations, is clearly the best long term strategy if you believe that US and global asset classes will continue their inexorable climb as they have for the past 100 years. And if you dont believe this, then you should be hoarding bullets and food.

Ironically, I speak from the perspective of a high net worth individual whose single largest investment exposures are in actively managed hedge fund strategies (plus cash). Our own indexed investments are less than 10% of our total net worth.