Generational alpha

abnormalreturns
January 11th, 2008

We came across a handful of related posts on the linked topics of alpha generation, information asymmetry and compensation. Due to time constraints we won’t comment much further, but we wanted to highlight these posts apart from the daily linkfest.

“There is no entitlement to abnormal returns.” (Going Private)

“Alpha generation is a phenomenon that will always be available to the smart, hard-working, creative and deeply talented.” (Information Arbitrage)

Short term liquidity events are evidence that opportunities to generate alpha will always exist. (All About Alpha)

“(I)n the global casino, the odds have turned from the house to the gambler, enabling those who can actually gain an edge (achieve alpha) to get compensated very well, and those who can not to gravitate towards mediocrity.” (Zero Beta)

Suffice it to say that we still hold in our belief that alpha generation for professional and individual investors alike is still difficult. The challenge is having enough self-knowledge to realize when one has the requisite skills (and energy) to go down an active management path and when to simply sit back and allow the power of portfolio simplicity to work on your behalf.