Alpha, My Local Seven-Eleven & Octane
Aug 23rd, 2006 | Filed under: CAPM / Alpha TheoryBy: Alpha Male
Like many suburban North Americans, I am blessed with a local 7-Eleven. Mine even has a gas-bar. Last week while filing my car, I was reminded of a common fallacy about hedge funds.
As with most gas stations, I am provided a choice of octane rating in my gasoline. The good folks at Seven-Eleven suggest that a higher octane rating will make my car go faster. After all, higher octane-rated gasoline is commonly known as “premium” gas. Now, I’m no chemical engineer, but octane sounds kind of dangerous to me. And I’m not the only one - The Merriam Webster Dictionary defines “high octane” as, “very powerful, strong, or effective”.
“So without any octane, my car probably won’t go”, I thought to myself as the pump started to fill my car. If this gasoline contained only the “other” components of gas, it wouldn’t work in a car’s engine. I guess my car could role down a hill in neutral, but it wouldn’t drive on its own. Maybe I could hook up a sail and ride a tail-wind to work. (But how would I get home?) Obviously, if my car didn’t drive on its own, it would be useless to me. After all, I could buy a bicycle for a lot less if I just wanted to ride down hills. More…
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